As we see more earnings reports and hear more calls from banks, brokerages and asset managers, it's clear that Q2'21 will easily set a record as the most painful quarter ever for fee waivers. BNY Mellon explained in its earnings release, "The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In 2Q21, the net impact of money market fee waivers was $252 million, up from $188 million in 1Q21, driven by lower short-term interest rates and higher money market balances." (See the earnings call transcript here. Also, please join us this afternoon for our "Money Fund Wisdom Product Training" webinar from 2-3pm EDT.)

CFO Emily Portney comments, "Total revenue was lower by 1% due to lower net interest revenue and higher money market fee waivers, partially offset by strong fee growth. Fee revenue grew 4%, or 10% excluding the impact of fee waivers.... Money market fee waivers, net of distribution and servicing expense were $252 million in the quarter, up $64 million from the prior quarter, which impacted pretax income by approximately $40 million, sequentially. Higher waivers were driven by lower T-Bill and repo rates as well as higher average balances.... Investment Management revenue grew 13% due to higher market values, the benefit of a weaker U.S. dollar higher performance fees and net inflows despite a 9% negative impact few waivers."

She explains, "Although using the forward curve and assuming flat balances, we estimate fee waivers, net of distribution and servicing expense to be approximately $225 million in the third quarter, slightly better than the $252 million this quarter, driven by the slightly higher short-term rate outlook. This is estimated to have a modest pre-tax benefit of $15 million next quarter. With regard to fees ex-waivers, recall that we guided at year-end for growth to be about 3%. Given the strong first half of this year, we now expect full year fees ex-waivers to be up between 7% and 8%."

During the call's Q&A, Portnoy responds, "So you're right, we have been proactively managing deposits and very successfully. We've been working with our clients, and you can see that in our trends ... despite the Fed continuing to pump excess liquidity into the system. Ultimately, we have managed our deposits and they're down 1% sequentially. This has been very much a coordinated effort with our salespeople and our clients. And in terms of looking at what's excess on our balance sheet, we probably think we have about $25 billion to $50 billion that still excess."

She continues, "But what we have been doing is looking at what is excess and actually working with our clients to move it to off-balance sheet vehicles such as money market funds. That's partially why you see a 9% growth in our money market fund balances that were driving waivers. [W]e're fortunate, too, in that we have a very robust liquidity solutions business. We offer both in-house as well as third-party solutions. And that has been certainly very attractive to our clients as we've endeavored to manage the balance sheet. [G]oing forward, we will continue to do that ... we're comfortable where we are."

BNY CEO Todd Gibbons tells us, "It's a very disciplined process ... and we look at it client by client. The good news is we've been able to capture most of that in our money market funds or our Liquidity Direct offerings. So we are gaining market share there. And we've got a little bit of benefit when the Fed did increase the interest rate on excess reserves and the reverse repo.... They provided a bit of an outlet. So, we think even though the Fed will probably continue to provide liquidity and build their balance sheet that we should be able to manage it. But our best guess right now is we're pretty close to the trough. And as we think through money market fee waivers, it does feel like the support in the reverse repo program has probably bottomed that out."

See also Charles Schwab's latest earnings releases, which shows fee waivers of $85 million in the latest quarter and $163 million over the past six months through June 30, 2021. (Watch for more earnings and waiver news in coming days.)

In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our July 13 News, "July MF Portfolio Holdings: Repo Surge Again on RRP; T-Bills Plunge.")

Their MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in June, prime money market funds held 36.2 percent of their portfolios in daily liquid assets and 49.7 percent in weekly liquid assets, while government money market funds held 81.6 percent of their portfolios in daily liquid assets and 90.0 percent in weekly liquid assets." Prime DLA was up from 32.9% in May, and Prime WLA increased from 47.7%. Govt MMFs' DLA increased from 80.4% in May and Govt WLA increased from 89.0% from the previous month.

ICI explains, "At the end of June, prime funds had a weighted average maturity (WAM) of 44 days and a weighted average life (WAL) of 61 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 37 days and a WAL of 85 days." Prime WAMs and WALs were both down one day from the previous month. Govt WAMs were unchanged while WALs were up one day from May.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $172.90 billion in May to $235.89 billion in June. Government money market funds' holdings attributable to the Americas rose from $3,555.35 billion in May to $3,649.79 billion in June."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $235.9 billion, or 48.9%; Asia and Pacific at $88.7 billion, or 18.4%; Europe at $152.8 billion, or 31.7%; and, Other (including Supranational) at $4.7 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.650 trillion, or 90.5%; Asia and Pacific at $133.1 billion, or 3.3%; Europe at $240.4 billion, 6.0%, and Other (Including Supranational) at $11.2 billion, or 0.3%."

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