Following yesterday's market concerns over French banks, Reuters wrote story entitled, "Top U.S. money funds stood by French banks in July". They write, "Major U.S. money market mutual funds continued to hold securities issued by top French banks in July, new data show, underscoring the close ties between the funds and the latest part of the financial system under stress. The data comes at a time of increased nervousness on the outlook for French banks over their exposure to other European economies. On Wednesday shares in Societe Generale fell 15 percent, while rivals Credit Agricole and BNP Paribas closed down 12 percent and 9.5 percent respectively."
This follows the publication late Tuesday of a J.P. Morgan Securities' "Short-Term Fixed Income Markets Research Note" entitled, "Update on prime money fund holdings for July 2011," which puts a different spin on the question of money funds' holdings of French banks. It comments, "Over the course of July, US prime money market funds again cut their exposures to Eurozone banks. Month over month, holdings of Eurozone paper (CP, ABCP, CD, and repo) declined by $38bn to $340bn, a 10% drop, and are now at the lowest level since we started tracking money fund holdings early last year. In June, prime funds had already reduced their exposures by $58bn."
Reuters continues, "[M]money funds have largely defended their French bank holdings since questions about them began this summer. The fact that they stood by the banks through July, despite major outflows from the funds' own investors during the period, might lend support to arguments that the French banks are sound now. Holdings are closely watched because money funds support so much of the global financial system. A pullback by the funds could in theory lead to a loss of liquidity for the French banks or other lenders."
The article explains, "So far no major pullback seems to be under way, said Alex Roever, head of short term fixed income strategy at JPMorgan Chase & Co, in an interview." They quote Roever, "I think the perception that money funds are trying to liquidate their foreign bank commercial paper positions is not quite right. This story of the banks being 'hungry for dollars' is overdone."
The piece also quotes Deborah Cunningham, Chief Investment Officer of Money Markets at Federated Investors, "We are definitely supportive of the view that the French banks ... continue to meet our assessment of high quality and represent minimal credit risk." It adds, "She said the company has not changed its positioning since the end of July."
The JPMorgan update adds, "Not surprisingly, of all the Eurozone exposures, French banks took the biggest hit with French unsecured bank paper declining by $27bn. Interestingly, the reduction was offset by an $11bn increase in French repo balances, likely reflecting investors' preference for shorter maturities. Indeed, the percentage of French holdings maturing less than 30d jumped from 28% to 48% last month." (Note that Crane Data will be publishing its comprehensive monthly Money Fund Portfolio Holdings series with data as of July 31 tomorrow around noon.)
