A press release entitled, "Northern Trust Asset Management Announces Updates to its Money Market Fund Line Up in Europe" explains, "Northern Trust Asset Management today announced it will migrate the Sterling and US Dollar sub-funds of its Irish UCITS money market funds, Northern Trust Global Funds plc, from constant net asset value (CNAV) to low volatility net asset value (LVNAV), as at close of business on 30 November 2018, subject to regulatory approval. The move rounds out the firm's European money market fund offering, which includes The Sterling and The US Dollar funds and the short-term variable net asset value (VNAV) The Euro Liquidity Fund. The product line up will provide investors with access to fund structures within the construct of the new European Money Market Reform (European MMFR) regulation consistent with the funds current investment approach."
Peter Yi, Northern Trust Asset Management's director of cash management, comments, "As one of the world's largest cash managers, we are experienced in helping investors navigate changing market environments -- and in delivering investment solutions to meet their needs.... With our existing VNAV offering, and the transition of our US and Sterling funds to an LVNAV structure, we're confident we can continue to meet investors' evolving liquidity needs and preferences -- today and in the future."
Northern's Marie Dzanis adds, "As we enter a new era for European Money Market funds, it is essential that we continue to provide our clients with flexible, transparent and competitive investment opportunities. Our strategies are well-positioned to do just that."
The release continues, "The European MMFR, which requires money market funds offered into Europe to be compliant by 21 January 2019, will see money market funds categorized into two types of money market funds: short-term money market funds and standard money market funds. As such, Northern Trust Asset Management will migrate two of its CNAV funds -- The Sterling Fund and The US Dollar -- to short-term LVNAV structures at the close of business on 30 November 2018. The transition will appear seamless to investors."
It adds, "According to European MMFR, funds are not required to be rated. However, for full transparency, Northern Trust Asset Management money market funds will continue to be rated by leading credit agencies." For more on European Money Market Fund Reforms, see these recent Crane Data News stories: Oct. MFI Profile: Highlights from European MFS: Irish Funds' Rooney (10/19), Sept. MFI Profile: New IMMFA Chair Hochfeld on European MMF Reforms (9/20), and JPMorgan on European MMF Reforms; Aviva First to Convert to LVNAV (9/5).
In other news, yesterday's Wall Street Journal featured the page 1 article, "Banks' Golden Deposits Are Heading Out the Door." They explain, "After nearly three years of rate increases from the Federal Reserve, customers are pulling billions of dollars out of accounts that don't earn interest and putting their money into higher-yielding alternatives. That will crimp banks' ability to grow profits going forward."
The piece continues, "The four largest U.S. banks -- JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. -- reported a combined 5% drop in U.S. deposits that earn no interest in the third quarter compared with a year ago. Customers withdrew more than $30 billion from U.S. bank accounts that don't earn interest over the year that ended June 30, the first such annual decline in more than a decade, according to Federal Deposit Insurance Corp. data."
The Journal writes, "Before the financial crisis, noninterest bearing deposits made up a much smaller portion of money at banks. In 2007, the Fed started cutting interest rates in an effort to combat mounting economic problems. The central bank left them near zero for seven years in an unprecedented move. For many individual depositors, rates were so low for so long on money-market and savings accounts across the industry that they opted to keep their money in checking accounts that earned nothing at all."
They tell us, "Noninterest deposits also became more attractive to corporate customers because the government offered unlimited insurance for many of these in the years after the crisis. Another incentive for corporate customers: They often earn credits to cover fees on other bank products when they put money in noninterest accounts. With rates so low, those credits were often worth more than they would have earned in an interest-bearing account. Slowly, lenders started paying higher rates to some savvy corporate and wealth-management customers who might otherwise take their money elsewhere. Still, money in noninterest accounts continued to grow."
The piece adds, "That is now reversing, even if slowly. Noninterest deposits of around $3.2 trillion were equal to 26.3% of domestic deposits at U.S. banks in the second quarter, according to FDIC data. Although way above precrisis levels, the ratio is down from 27.5% a year ago. That equates to about $30.6 billion less in noninterest accounts."
Finally, they say, "The push for a better deposit deal is coming mostly from businesses, which have more to gain because of their large amounts of cash. Lenders including Bank of America, JPMorgan and regional lender PNC Financial Services Group Inc. all said on earnings calls that business customers moved money from accounts that earn zero interest into accounts that pay more in the third quarter."
