State Street Global Advisors' published a "Q4 Global Cash Update, which looks at "potential effects of policy changes in the wake of Donald Trump's election and "ongoing issues challenging the European banking sector." They tells us, "As we probe the state of cash and credit across sectors and geographies, a major focus this year will be the impact of the incoming administration on still-new bank regulations established in the wake of 2008." We review SSGA's Update below, and we also discuss the first AAA rating of an FDIC-insured deposit program and review the latest asset flows from the ICI.
State Street's "Global Credit Research Update" explains, "As it pertains to the Global Cash business, Trump policy impact on US bank regulation will be a major focus of the Credit Research team in 2017. While the Trump administration is unlikely to prioritize the repeal of Dodd-Frank (since it is unlikely to muster the 60-vote supermajority needed to pass in the Senate), it is likely to take measures to weaken its enforcement, through appointments and the budget process."
It continues, "Further, US banks don't favor a full repeal. Rather the preference amongst US bank management teams is to make regulation simpler and less costly, rather than returning banking to the "Wild West days" that preceded the 2008 financial crisis. Bank management teams have acknowledged the benefits of the new rules, noting they have helped improve the way firms manage risks and view their businesses. They also generally recognize that having been forced to hold more capital, and build it quickly after the financial crisis, made their firms stronger than troubled European peers.... As such, we don't anticipate that the capital materially, which is positive for their respective credit profiles."
They tell us, "Outside of US banks, other significant components of the Global Cash investment universe will be challenged by persistent risk factors. European and UK banks will continue to face difficult operating environments. Persistently low interest rates, anemic loan growth, challenging trading conditions, and a re-calibrating of scale in capital-intensive businesses have all materially suppressed the earnings power of these banking sectors. These profitability pressures are ill-timed as they make it more difficult for the banks to build capital to meet regulatory requirements as they are phased in."
The piece says, "Deutsche Bank has been the 'poster child' for the difficulties facing European banks due to these noted factors, and we expect banks like it to continue to be in the headlines in 2017. In addition, upcoming elections in France, Germany and Holland (and possibly Italy), as well as the beginning of the UK Brexit process, pose risks to bank funding conditions in these jurisdictions in 2017 -- although we expect the ECB and the BOE to continue to be exceptionally accommodative in order to support funding dynamics."
SSGA adds, "Lastly, we'd note that the October US money market reform date proved to be a 'non event' for credit issuers, as expected. Despite the +$1 trillion shift in short term investment assets from prime funds into government money market funds, issuers and fund managers used the significant lead time to adjust their funding and investment strategies, well in advance of the implementation date. While credit spreads in the universe widened, the driver behind the move can be attributable to market technicals, rather than for fundamental credit reasons. Indeed, most metrics that are commonly followed as key indicators of market stress demonstrated the continuance of relatively accommodative funding conditions in the short term credit markets."
In other news, a press release entitled, "Kroll Bond Rating Agency Assigns AAAkf Fund Rating to StoneCastle Federally Insured Cash Account (FICA)," explains, "Kroll Bond Rating Agency (KBRA) has assigned a AAAkf Fund Rating to the StoneCastle Federally Insured Cash Account (FICA). The AAAkf rating reflects the Program's Primary Quantitative Rating (PQR) as measured by the KBRA Funds Credit Quality Rating Matrix, which is based on the credit quality of the underlying instruments that comprise the portfolio. Additionally, the fund rating is influenced by the results of the qualitative assessment of the investment advisor, StoneCastle Cash Management (SCCM). The qualitative shadow rating (QSR) for the fund was found to be strong."
It continues, "FICA's investment objective is to provide a high level of current income while maintaining liquidity and providing maximum safety. To meet this objective, FICA utilizes an investment strategy built entirely around investing exclusively in deposit accounts backed by the full faith and credit of the U.S. Government." (See also yesterday's "Link of the Day," "StoneCastle to Enter Sweeps Market.")
Finally, KBRA adds, "FICA meets Federal Deposit Insurance Corp. (FDIC) requirements for agency pass-through deposit insurance coverage, as well as meeting similar requirements as defined by the National Credit Union Administration (NCUA). As such, investment in the form of deposits at FICA network banks in the amount of $250,000 or less per depositor per bank meet FDIC and NCUA requirements for deposit insurance. Thus, FICA investments (deposits) are considered backed by the full faith and credit of the U.S. Government." (See also our March 11, 2010 News, "Standard and Poor's Weighs in on CDARS, Pooled FDIC Insured Accounts.")
Finally, ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $5.65 billion to $2.68 trillion for the week ended Wednesday, February 1, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $5.51 billion and prime funds decreased by $700 million. Tax-exempt money market funds increased by $560 million." Total Government MMF assets, which include Treasury funds too and which represent 80.7% of all money funds, stand at $2.164 trillion, while Total Prime MMFs, which total 14.3%, stand at $384.5 billion. Tax Exempt MMFs total $131.5 billion, or 4.9%.
It explains, "Assets of retail money market funds decreased by $1.41 billion to $976.76 billion. Among retail funds, government money market fund assets decreased by $1.56 billion to $599.67 billion, prime money market fund assets decreased by $250 million to $250.95 billion, and tax-exempt fund assets increased by $400 million to $126.14 billion." Retail assets account for over a third of total assets, or 36.4%, and Government Retail assets make up 61.4% of all Retail MMFs.
The release continues, "Assets of institutional money market funds decreased by $4.24 billion to $1.70 trillion. Among institutional funds, government money market fund assets decreased by $3.95 billion to $1.56 trillion, prime money market fund assets decreased by $460 million to $133.56 billion, and tax-exempt fund assets increased by $160 million to $5.35 billion." Institutional assets account for 63.6% of all MMF assets, with Government Inst assets making up 91.8% of all Institutional MMFs.
