Daily Links Archives: September, 2007

"FDIC Approves The Assumption of The Insured Deposits of Netbank, Alpharetta, Georgia". The Federal Deposit Insurance Corporation says "NetBank "with $2.3 billion in total deposits as of June 30, was closed today by the Office of Thrift Supervision.... The failed bank was an Internet bank and did not have any physical branches. Depositors of NetBank will automatically become depositors of ING Bank."

Bloomberg.com: "U.S. Commercial Paper Drop Slows After Fed Cuts Rates. "The decline in the U.S. commercial paper market slowed last week ... falling $13.6 billion ... to a seasonally adjusted $1.86 trillion, including a $17.3 billion decline in asset-backed commercial paper, according to the Federal Reserve," said Bloomberg.com. The story added, "The decline is smaller than the previous week's drop of $48.1 billion, a sign that buyers are starting to return to the market after the Fed's half-point reduction Sept. 18 in its benchmark interest rate."

"Rate cut pinches yields on savings" Says Associated Press. "Money-market yields fall with the Fed because the assets they buy are pegged in many ways to the Fed funds rate," the article quotes Peter Crane, president of money-fund tracker Crane Data. The piece says, "Money-market funds are focusing on even shorter-term securities than usual to reduce risk. Many have shied away from mortgage-backed securities in recent months, as credit quality has weakened".

Jonathan Clements wrote in yesterday's Wall Street Journal "When a Recession Threatens, Cash Suddenly Has Cachet". The article discusses where and why to raise cash in the current environment, "A mountain of cash would, of course, be a great comfort if you're laid off. But even if you hang on to your job, a little extra money in a high-yield savings account or a money-market fund could prove mighty useful."

SWIFT hosts Sibos 2007 Boston. European based SWIFT, "industry-owned co-operative supplying secure, standardised messaging services and interface software to ... banks, broker-dealers and investment managers " will host one of the largest financial services conferences in the world next week in Boston, October 1-4. The Boston Convention Center will be the center of the financial universe in October as AFP's Annual Conference arrives three weeks later.

"Lock in a solid savings rate" writes CNNMoney.com. The article discusses CDs, money markets, and the Fed rate cut's impact on savers, and quotes Crane Data's Pete Crane, "There is no secret to money fund yields - they follow the Fed. They will drop, and drop rather quickly.... The decline may get diluted or delayed slightly [by high rates on asset-backed commercial paper]. But it's coming - there's no doubt about that."

"Fed Will Lower Rates Again Before January Trading History Shows" Says Bloomberg. Monday's Elizabeth Stanton article discusses two indicators pointing to lower rates -- 2-year Treasury note yields over 50 basis points below the Fed fund target and Fed funds futures. Futures currently predict at least two more 1/4-point reductions, though their record of accuracy is mixed at best. The piece says, "[T]raders have pushed the yield on Treasury two-year notes to almost three quarters of a point below the designated 4.75 percent funds rate. In the three previous occasions during the past 20 years when that has happened, policy makers have cut borrowing costs."

The Wall Street Journal says we're "Not Out of the Woods Yet". Saturday's breakingviews.com-written piece says, "It is tempting to hope the worst is over. But this truce is extremely fragile. Conditions in the money markets are improving, but only slowly. So it could take months to get back to normalcy," says the article. It adds, "The sense of crisis is also receding from the commercial-paper market.... The amount of commercial paper outstanding collapsed by some $200 billion in a few weeks. It is still shrinking but only at a trickle."

ICI Weekly Money Fund Assets Show First Money Fund Decline in 10 Weeks. Money fund assets fell by $3.14 billion this week to $2.825 trillion, as Sept. 17 corporate tax payments pulled money fund totals down. Assets should resume their record run with a vengeance next week, however, as institutional assets move to money funds to delay the impact of the Fed's Tuesday 1/2% rate cut.

"U.S. Commercial Paper Slump Extends to Sixth Week" Says Bloomberg.com. CP outstandings suffered another drop ($48.1 billion) in the latest week, according to the Federal Reserve's latest statistics to $1.883 trillion. The article quotes Maureen Coen, global head of asset-backed commercial paper origination at Credit Suisse, "The view that purchasers of asset-backed commercial paper have driven the drop by boycotting the paper completely is a myth that needs to be dispelled."

The Wall Street Journal's "What the Rate Cut Means for You" quotes Crane Data statistics and Pete Crane, saying, "Average yields on money-market mutual funds, which have been hovering at 5% for about a year, are likely to drop to about 4.5% in the next month.... But part of the fall in yields may be counteracted by some managers' moves to buy higher-yielding asset-backed commercial paper. As a result, there may be a benefit to shopping around since money managers can differentiate their funds' performance by investing in the higher-yielding securities."

"American Beacon U.S. Government Money Market Fund Assets Surpass $1 Billion" says a company press release posted on Earthtimes.org. American Beacon Advisors announced on August 31, 2007 that their U.S. Government Money Market Funds reached $1.2 billion in assets as of Aug. 31. "This is a milestone for American Beacon Advisors as well as our U.S. Government Money Market Fund," said Doug Herring, President of American Beacon Advisors.

"DBRS throws in the towel and switches to global-style conduit liquidity" writes CreditFlux, which covers derivatives and structured securities publication. "Toronto-based credit rating agency DBRS has announced that it has changed its criteria on liquidity facilities for asset-backed commercial paper conduits. New liquidity facilities will need to follow global standards.... Commercial paper investors now perceive DBRS-rated ABCP conduits as tainted," says the brief.

"When safety, accessibility are key, money markets still a lock" says Saturday Boston Globe. Linda Stern says some people have been scared by recent reports. "Not me. I remain convinced money market funds run by big name investment companies still offer the best combination of yield and security for parking money," she writes.

FT.com says "Commercial paper activity shows signs of steadying". "The commercial paper market showed significant signs of stabilising on Thursday, suggesting short-term investors that have driven a dramatic shrinkage in the market may have largely completed their exit from commercial paper backed by mortgages and other assets," says the FT. The paper quotes Peter Crane, "Since problems in the commercial paper market began, much of the paper has probably already turned over.... Contraction in CP is not a sign of weakness, it's one of strength as issuers are escorted in an orderly manner out of the market."

"Commercial Paper Slump Eases; Asset-Backed Drop Slows" Says Bloomberg. The article quotes Tony Crescenzi, "The new CP data will likely spur investors to grab higher-yielding money market assets. If entities are having an easier time of raising money in the CP market, their reliance upon bank debt will shrink."

BusinessWeek's "A New Risk to the Credit Markets" discusses the upcoming rollover of several hundred billion in asset-backed commercial paper (ABCP). "Forget about subprime. With billions in asset-backed commercial paper about to expire, the U.S. debt market is facing yet another challenge," subtitles the article. "About $417 billion worth of asset-backed commercial paper is scheduled to come due during the weeks of Sept. 10 and Sept. 17."

"Safety-First Money Market Funds" on Forbes.com, written by Jim Stack of InvesTech Research reviews some of the recent market turmoil and gives advice on choosing a money market mutual fund. Stack says, "The reality is that, short of a financial crisis, money market funds are very safe investments. Though they are not insured by the FDIC, they are regulated by the SEC."

Financial Times writes "Investors in commercial paper go on strike". The FT says, "Investors and financiers linked to the asset-backed commercial paper market will stage a transatlantic debate about ways to end the current crisis in the global money markets.... One crucial factor behind the current money markets crisis is that the financial investors that have typically been purchasing ABCP notes have in effect - but silently - gone on strike in recent weeks."

"Is Your Money Market Fund Really Safe?" Asks TheStreet.com. "Money market mutual funds are supposed to be a safe place to stash your cash and get a better return than a savings bank account. But lately some investors have been questioning just how safe they really are," says the piece.

Fitch Ratings releases "Asset-Backed Commercial Paper & Global Banks Exposure - 10 Key Questions". The London-authored report says "Banks, acting as sponsors of Asset-Backed Commercial Paper (ABCP) programmes have at the epicentre of a rapidly developing storm in the commercial paper market.... It should be noted though that the majority of ABCP programs have committed liquidity lines ... and therefore CP noteholders are not exposed to market value risk.... [S]ponsor banks are the main providers of liquidity lines."

LA Times says "Yields climbing on money funds: Treasury bill rates rebound, and returns on other short-term IOUs remain elevated". "Interest yields are rising on money market mutual funds as normalcy returns to the pricing of some short-term IOUs -- and other segments of that market remain on edge," says the Times. In other news, Reuters says "U.S. money market fund assets set fresh record".

The Seattle Times Writes "County could lose millions because of credit downgrade", saying "The nation's subprime-mortgage crisis has slammed into the halls of local government." King County, Washington removed a troubled investment in Mainsail II, which was downgraded last week, from the $4.1 billion King County Investment Pool. "Mainsail and Cheyne [which the pool also owns] investments are 'SIVs lite' -- or structured investment vehicles whose underlying assets are less diverse than those of other SIVs," says the paper.

"Debt 'Conduits' Are Hovering Over Citigroup" Says WSJ. "Citigroup ... owns about 25% of the market for SIVs [structured investment vehicles], representing nearly $100 billion.... Yet some investors worry that if vehicles such as Centauri [Citi's largest SIV] stumble, either failing to sell commercial paper or suffering severe losses in the assets it holds, Citibank could wind up having to help by lending funds to keep the vehicle operating or even taking on some losses," says the Journal. "Citigroup has told investors in its SIVs ... that they are sound and pose no problems".

Payden & Rygel Launches TV Ad Campaign and Introduces "Offshore" Money Funds. The LA-based advisor began a rare money market fund TV ad campaign for Payden Cash Reserves Money Market, which debuted today on CNBC. The campaign touts the fund's government-only investment policy and 5+% yield. "Investors today are seeking assurance, stability and no surprises when investing their money in what they believe are short-term liquid instruments," says the release. London-based Payden & Ryden Global also launched three enhanced cash funds -- sterling, euro and US dollar liquidity.

Moody's Investors Service will host a teleconference and webcast "Update on Short-Term Structured Finance Securities: Structured Investment Vehicles (SIVs, SIV-lites)". The call is scheduled for Wednesday, Sept. 5 at 10amEDT and speakers include: Paul Mazataud, Henry Tabe, Martin Rast, and Paul Kerlogue. SIV-linked securities are the latest to come under scrutiny following the recent restructuring and wind-down of Cheyne Finance. (See Telegraph.co.uk article on Cheyne.)

The Chicago Tribune performs an autopsy on the now-infamous not-anywhere-near-a-money-fund Sentinel Asset Management in "Search is on for Sentinel assets". Subtitled, "Regulators are bedeviled by what happened to perhaps half a billion in client funds," the article discusses what kinds of leverage and fraud were used to lose hundreds of millions of dollars for the companies' futures broker and hedge fund clients.

"Treasury Three-Month Bill Yields Fall Most Since 2001 on Credit" writes Bloomberg's Min Zeng. The piece summarizes the recent decline in Treasury bill rates during the August flight-to-quality mini-panic and asset-backed commercial paper market seize-up.

Yesterday's USA Today says "Rest easy, your money market fund is probably fine". Columnist Matt Krantz answers a reader's question: "My money market fund can invest up to 20% of its assets in asset-backed securities. Can it buy these bad subprime loans, too?" There were "unfounded fears that the credit crunch was starting to hurt money market funds," he says. "Don't lose sleep. As long as the funds are doing what they're required by law to do, investing in widely diversified baskets of short-term securities, you shouldn't have anything to worry about".