Schwab, Northern Fee Waivers Decline
Recent Q3 earnings statements by Charles Schwab and Northern Trust show a trend of money market fund managers reducing fee waivers. Schwab's earnings release says that money market fee waivers were $166 million in Q3, down from $190 million a year ago. Schwab CFO Joe Martinetto also gave an update on Schwab's cash sweep business. He said, "We are in the process of utilizing our recent $600 million preferred issuance to support approximately $4.0 billion in bulk transfers of cash sweep balances from money market funds to Schwab Bank. We completed the first $1.1 billion transfer in September, and plan to move the remainder during the fourth quarter." Northern Trust's Q3 earnings release says, "Investment management fees increased 10% due to new business and lower money market mutual fund fee waivers. Money market mutual fund fee waivers in C&IS totaled $12.2 million in the current quarter compared to $16.7 million in the prior-year quarter." (Crane's Money Fund Average shows average charged money fund expense ratios rising from 0.12% to 0.15% year-to-date through 9/30, while our Crane 100 has risen from 0.14% to 0.16% in charged expenses.) Yesterday, we featured the News story, "ICI, JPM on Sept. Portfolio Holdings; No Fee Recapture for Vanguard" which discussed how Vanguard is not going to recapture waived fees, as reported by The Independent Adviser for Vanguard Investors. Note too that late Thursday Federated Investors' will release its third quarter earnings, which should reflect easing fee waivers too. A press release says, "Federated Investors, Inc., one of the nation's largest investment managers, will report financial and operating results for the quarter ended Sept. 30, 2015 at approximately 4:15 p.m. on Thursday, Oct. 22, 2015. A conference call for investors and analysts will be held at 9 a.m. Eastern on Friday, Oct. 23, 2015. President and Chief Executive Officer J. Christopher Donahue and Chief Financial Officer Thomas R. Donahue will host the call." In other news, Bloomberg published an article, "These Are the Fed's Three Weapons If the Economy Falters." One weapon is, the piece says, "The Fed could lower its main policy rate below zero, something it has never done. The target rate is currently at between zero and 0.25 percent.... Faced with having to pay a bank to hold their money, depositors may choose to take on more risk by shifting funds into assets with longer maturities, pushing down interest rates further along the yield curve.... The goal of investment in short-term assets, says Joseph Abate, a money market strategist at Barclays in New York, becomes "losing less money," and the distortions that creates may not be worth the trouble."
