Yesterday, we wrote about the 3-year anniversary of the Lehman Brothers bankruptcy, and tomorrow we will write about the anniversary of Reserve Primary Fund "breaking the buck". Today, though, we excerpt from news from the day in between, Sept. 16. It appeared as if the default would still be business as usual for money funds as several advisors stepped in to purchase the troubled securities and support their funds. Our Sept. 16, 2008 "Crane Data News" story, "Lehman Support Actions Push Money Fund Bailouts to 20 Total," said, "We wrote yesterday about money funds' limited exposure to Lehman Brothers and about the support actions taken by investment advisors so far. Evergreen and Russell have disclosed support agreement for their funds, while some other funds have disclosed Lehman holdings and pledged to maintain their $1.00 NAVs. The vast majority of money funds appear to have no direct exposure to Lehman, though they're now answering questions on AIG, which was downgraded to A-2 but is still P-1 (short-term ratings), and WaMu."
Our 9/16/08 piece continued, "The latest crisis should bring Crane Data's tally of the number of advisors supporting their money funds over the past 13 months to 20. Besides Evergreen, money funds disclosing or showing holdings of Lehman in recent public filings include: Columbia Cash Reserves, which held $400 million, or 0.73% of its assets; Reserve Primary; and Russell Money Market Fund. All are expected to protect their funds from any threat to the $1.00 a share NAV should it become necessary.
We quoted Russell, "The RIC and RTC money market funds have exposure to Lehman Brothers notes. Russell has been actively monitoring the situation and is entering into support agreements with the money market funds in which Russell and our AAA-rated parent company, Northwestern Mutual, will support the value of Lehman credit held in the funds to ensure that the funds continue to maintain a stable net asset value. The direct exposure in the RIC Money Market Fund as of Friday, September 12 was $403 million; in the Russell Trust Company Short Term Investment Fund, it was $75 million.
Dow Jones covered the story in, "Wachovia To Bolster Evergreen Funds, More Support To Come." It wrote, "[S]everal money funds reported holdings in Lehman paper in their most recent filings.... One example is the Primary Fund managed by New York money manager The Reserve. As of May 31, the $64.85 billion Primary Fund had some $785 million in Lehman commercial paper and medium-term notes." It added, "The Reserve has historically protected the NAV of its money funds as needed."
In other news, a statement entitled, "ECB announces additional US dollar liquidity-providing operations over year-end," said yesterday, "The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010.... These will all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment." See the ECB, Bank of England, Bank of Japan or Swiss National Bank websites for more details. See also today's Wall Street Journal, which features "Central Banks Pour Dollars Into Europe".
Finally, "Moody's assigned its 'Aaa-mf' ratings to three Morgan Stanley Money Market Funds yesterday. The ratings agency says, "Moody's Investors Service has assigned Aaa-mf ratings to the following three money market funds (collectively, the "Funds") managed by Morgan Stanley Investment Management Inc.: Active Assets Money Trust $6.5 billion, Morgan Stanley U.S. Government Money Market Trust $1.75 billion, and Morgan Stanley Liquid Asset Fund Inc. $6.2 billion. The ratings reflect the strong credit quality, elevated levels of overnight and 7-day liquidity, above average resilience to Moody's net asset value (NAV) stresses, and well-diversified, retail-focused investor base. Moody's expects the funds' composition to moderate from their highly defensive positioning due to the current market environment, but remain conservatively structured relative to peers. Due to the heavy retail oriented investor base, sourced primarily through Morgan Stanley Smith Barney's Financial Advisors, we believe the Funds will likely experience lower levels of shareholder volatility relative to more institutionally oriented funds."
