A press release informed us yesterday that, "Fitch Ratings has released a report, "U.S. Money Funds and European Banks: French Exposure Down," updating its analysis of the exposures of U.S. prime money market funds (MMFs) to European banks as of end-September." It says, "Based on a sample of the 10 largest U.S. prime MMFs, Fitch Ratings' study reveals that: Exposure to European banks declined by 14% (on a dollar basis) since the end of August and 37% since the end of May; French bank exposure continued to roll off, falling by 42% (on a dollar basis) since end-August; and, MMFs increased exposure to banks in several countries including Japan, Australia, and Canada, which now represents the largest single country exposure at 10.7% of total MMF assets.” (See also Crane Data's Oct. 14 News, "Canada Surpasses France as 2nd Largest, French Banks Out of Top 10".)

The Fitch report explains, "As of month-end September, U.S. prime money market funds (MMFs) have reduced their total exposure to European banks by 14% on a dollar basis relative to the prior reporting period of month-end August 2011, and by 37% relative to month end May 2011. European bank exposure currently represents 37.7% of total holdings of $654 billion within Fitch's sample of the 10 largest prime MMFs, a decrease from 42.1% of fund assets as of month-end August. The current exposure level is the lowest in percentage terms for European banks within Fitch's historical time series, which dates back to the second half of 2006. This share is down from 47.2% as of month-end July, which was based on total MMF holdings of $658 billion."

They continue, "Exposure to French banks decreased significantly from 11.2% to 6.7% of MMF assets, which on a dollar basis corresponds to a 42% decline over the past month, and a 62% decline since month-end May. At its peak in the second half of 2009, exposure to French banks represented 16.4% of all MMF assets. Exposure to U.K. banks decreased from 8.8% to 8.7% of MMF assets over the past month, a dollar-basis decline of 5%. Exposures to Nordic banks increased by 4% (on a dollar basis) since end-August and currently represent 7.2% of total MMF assets, more than France but below the U.K. level. Globally, the MMFs sampled increased their exposure to banks in several countries, including Canada, which is currently the largest single country exposure at 10.7% of total MMF assets. Since the end of August, exposures to Japanese banks increased by 22% and exposures to Australian banks increased by 4%."

Fitch also tells us, "In recent months, the MMFs sampled have reduced the maturity profile of their CD exposures to European banks in several countries. As of the end of September, the proportion of MMF exposure to French bank CDs in the shortest maturity bucket (seven days or fewer) remained elevated at 27%. Additionally, there has been an evident shift in CD maturities out of the longest term bucket (61 days or greater), which now represent just 20% of French bank CDs down from more than half as of the end of June. Within the U.K., bank CDs experienced a proportionate decrease of about 10% from the longest-term bucket, with corresponding increases of roughly 5% in both the short-term and medium-term buckets. The maturity profile of banks in the Netherlands was stable, with slight increases in both the short-term but also in the longest-term buckets."

Finally, the report comments, "The 15 largest exposures to individual banks, as a group, comprise approximately 43% of total MMF assets. There are three new entrants in the top 15 relative to the prior reporting period: Bank of Tokyo Mitsubishi, Citibank, and Commonwealth Bank of Australia. The six European institutions within the top 15 (down from nine institutions in the top 15 as of the end of August) account in aggregate for roughly 18% of total MMF assets."

Fitch's table "Largest MMF Exposures -- Financial Institutions" (as of Sept. 30) includes the following issuers/counterparties (along with the total in CD, CP, Repo, Other as a % of MMF Assets): Deutsche Bank (3.5%), Westpac (3.5%), Barclays (3.5%), Rabobank (3.3%), Bank of Nova Scotia (3.1%), Royal Bank of Canada (3.0%), Credit Suisse (3.0%), BNP Paribas (2.8%), Sumitomo Mitsui (2.7%), JP Morgan Chase (2.6%), National Australia Bank (2.5%), Bank of Tokyo Mitsubishi (2.5%), Svenska Handelsbanken (2.2%), Citibank (2.2%), and Commonwealth Bank of Australia (2.1%).

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