The Reserve posted a release entitled "​Court Orders Liquidation of Reserve Primary Fund", which says, "We are pleased to announce that, on November 25, 2009, the United States District Court for the Southern District of New York issued an Order on an application made by the U.​S. Securities and Exchange Commission concerning the distribution of the Primary Fund'​s remaining assets. The Order provides for a pro rata distribution of the remaining assets and enjoins certain claims against the Primary Fund and other parties named as defendants in litigation involving the Primary Fund. The terms of the plan, and a discussion thereof, are set forth in the Order and accompanying Opinion dated November 25, 2009. To date, shareholders have received approximately 92 percent of their assets in the Fund as of the close of business on September 15, 2008. The Primary Fund will mail copies of the Order and Opinion to owners of record for unredeemed shares in the Fund as of September 15, 16, 17 or 18, 2008, as required by the Court. In addition, the Order and Memorandum Opinion are available." See also, "Additional Information Regarding the Reserve Primary Fund" and Friday'​s "Link of the Day."

Bloomberg writes "​Judge Orders Pro Rata Distribution of Reserve Primary", saying, "Reserve Primary investors waiting for cash from the money-​market mutual fund whose September 2008 crash helped freeze global credit markets must share equally in its losses, a federal judge said. U.​S. District Judge Paul Gardephe in New York today agreed with the Securities and Exchange Commission and ordered a pro rata distribution of almost all the fund'​s remaining assets. All shareholders can expect to recover at least 98.​75 percent of money held in the fund when it closed on Sept. 16, 2008." Bloomberg adds, "The decision marks the first major step by a court to clean up the mess left for investors caught in the largest money-​fund failure in the industry'​s 40-​year history." See also, Reuters' "​Fed told rule change could help with exit: source", which says, "​A handful of banks have told the Federal Reserve they could do more to support the central bank'​s exit from its emergency cash infusions if a key accounting rule was changed.... At issue are reverse repurchase agreements, a cash-​draining tool, that the banks said could be used to a greater extent when the time comes if dealers did not have to record them on their balance sheets when they act as middle-​men." Finally, see ICI'​s weekly "​Money Market Mutual Fund Assets", which says, "assets decreased by $​7.​82 billion to $​3.​330 trillion" through Tuesday, Nov. 24."

Dow Jones reports, "Reserve International Liquidity Fund To Distribute $​200 Mln, which says of the "​offshore" (​non-​U.​S.) money market fund, "Reserve International Liquidity Fund plans to distribute $​200 million to shareholders on Wednesday, the offshore fund'​s third distribution since its asset value fell below $​1 per share last year." Reserve'​s release says, "The Reserve is pleased to announce that it will begin its third distribution to shareholders of the Reserve International Liquidity Fund Ltd. on November 25, 2009 in the amount of $​200 million. The distribution will be commenced provided that the requisite approvals are obtained from the New York Supreme Court and the British Virgin Island Commission. These approvals are expected to be received on November 23, 2009. This distribution represents approximately 39% of the remaining total assets of the Fund ($​507 million) as of the close of business on November 19, 2009. At the conclusion of this distribution, approximately $​2.​5 billion or 86% of the Fund'​s assets as of the close of business on September 15, 2008 will have been returned to shareholders.... The Fund'​s total assets were approximately $​2.​8 billion at the close of business on September 15, 2008 and the Fund'​s net asset value fell below $​1.​00 per share on September 16, 2008."

Cash investment boutique Capital Advisors recently released a whitepaper entitled, "​How Safe Are Prime Money Market Funds?", which asks, "Are prime funds getting safer?" and "Are all prime funds alike?" It says, "The general risk profile of the large prime fund group has improved since our last [​April 2006] publication. The average fund now has better liquidity, better credit quality and lower structural complexity. Weighted average maturity (​WAM) risk, however, is on the rise. There is wide dispersion among funds in each of the major risk categories. Investors can choose from various funds if they are concerned with certain risks." The introduction states, "[​T]​his class of funds has been the focus of heightened concern for institutional investors. Significant credit events that have affected money market funds include troubles with subprime mortgage issuers, the disintegration of structured investment vehicles (​SIVs), widespread downgrades of AAA-​rated bond guarantors, a seized-​up short term credit market, and a mass exodus from prime funds in the days after the Reserve Primary Fund'​s net asset value (​NAV) fell below the constant $​1.​00 share price. For this updated paper, we seek to answer how the risk behaviors of large prime money market funds have changed since the Reserve Primary event in September 2008; and how these behaviors differ from fund to fund. Based on empirical data from the fund industry and our own fundamental analysis, we hope this postmortem will help investors identify the evolving risk management necessities of prime money fund due diligence."

ICI'​s latest "​Money Market Mutual Fund Assets" release says, "Total money market mutual fund assets increased by $​3.​71 billion to $​3.​339 trillion for the week ended Wednesday, November 18.... Assets of retail money market funds decreased by $​4.​90 billion to $​1.​088 trillion.... Assets of institutional money market funds increased by $​8.​62 billion to $​2.​251 trillion. Among institutional funds, taxable government money market fund assets increased by $​1.​15 billion to $​884.​20 billion, taxable non-​government money market fund assets increased by $​6.​69 billion to $​1.​197 trillion, and tax-​exempt fund assets increased by $​780 million to $​169.​17 billion." This represents the first week in the past six in which money fund assets have increased. YTD, money fund assets have declined by $​491 billion, or 12.​8%, and over 52 weeks assets have decreased by $​342 billion, or 9.​6%. (Crane Data'​s Money Fund Intelligence Daily shows assets rising by $​9.​3 billion on Wednesday and by an additional $​10.​7 billion on Thursday, so the slight rebound appears to be continuing.)

"​Checking Account Fees Are Making a Comeback" writes SmartMoney. They say, "Congress and federal regulators may be clamping down on overdraft fees, but consumers may be seeing what some critics say is an even sneakier type of charge increasingly showing up on bank statements: the monthly maintenance fee. Checking account maintenance fees had been a rarity in the past several years as banks threw offers of free checking at consumers in hopes of attracting deposits. Now, free checking itself may be headed toward extinction as both the size of the monthly fees and the number of banks that charge them are on ths rise. Account maintenance fees increased by 15% between the first and third quarter of 2009, according to Money-​Rates.​com, a site that compiles data on banking products' interest rates."

"​The Perils of Chasing Higher Yields" from The Wall Street Journal says, "​With short-​term interest rates at historic lows, most traditionally safe investment options have yields you need a magnifying glass to see. As a result, many investors are turning to intermediate-​term, mortgage-​backed and other relatively risky bond funds for a better return. By doing so, however, they may be forgetting last year'​s lessons about not putting money you might need soon at risk.... Painful as it is to accept the yields, short-​term options are still the best way to preserve money you are going to need in the next few years." It adds, "But as the economy recovers, interest rates could soar, sending bond prices tumbling. That could make intermediate-​term bond funds poor choices for money you'​ll need in the next couple of years to live on, pay tuition or make a down payment on a house. If interest rates surge, longer-​term funds can cost you.... So what'​s really safe? Your best bets are bank savings accounts, certificates of deposit or money-​market funds, which at best are offering annual yields of 2%."

A press release entitled, "​SunTrust Breaks Ground for Companies and Their Employees with Addition of FDIC Insured Account to Its 401(​k) Offering" says, "SunTrust Banks, Inc. (​STI) announced today that it has added an FDIC insured account as an investment option for companies who choose SunTrust as their institutional 401(​k) provider. SunTrust is among the first to offer an FDIC insured deposit account as part of an institutional 401(​k) investment platform. The SunTrust Bank FDIC Insured Account is available through SunTrust'​s institutional 401(​k) plan solution for companies who elect to include it as one of the investment choices for their employees. It is an interest earning account that offers competitive rates and current income, while preserving principal." Brenda Seliga, senior vice president and head of Employee Benefit Solutions at SunTrust, says, "​The recent economic and market environments have changed people'​s perspectives on their retirement savings. Many have greater interest in including investments that offer solid capital preservation as part of their retirement portfolio."

Today'​s Wall Street Journal writes "​Money Funds Again Take On Risk: Low Supply Causes More Boldness" saying, "Faced with a dearth of high-​quality, short-​term liquid investments in which to invest and low yields, some money funds are moving into longer-​duration instruments, boosting their risk. It'​s a notable reversal as many money-​market funds had shifted to shorter-​term investments in the grip of last year'​s panic." The piece echoes a Crane Data News article ("Wells Fargo Talks Supply, ABCP, Support Programs in PM Commentary") and quotes Peter Crane, "The pendulum has never swung so quickly from greed to fear and back again." It adds, "​Average maturities for money funds came down last fall, although perhaps not as dramatically as some would have expected, after the industry was shaken by a fund that failed to keep its dollar par value. The average weighted maturity of the 100 largest money-​market funds was 47 days in August 2008, then dipped to 43 days for two months, according to Crane. By February it was back up to pre-​crisis levels and, currently, the weighted average maturity of the 100 largest money-​market funds is 52 days. That'​s the highest since April 2006, when Crane began tracking it, he said." The article also quotes Wells Fargo'​s David Sylvester, Goldman Sachs' Dave Fishman, and Federated'​s Debbie Cunningham.

"​FDIC Board Approves Final Rule on Prepaid Assessments" says "The Board of Directors of the Federal Deposit Insurance Corporation (​FDIC) today voted to require insured institutions to prepay slightly over three years of estimated insurance assessments. The pre-​payment allows the FDIC to strengthen the cash position of the Deposit Insurance Fund (​DIF) immediately without immediately impacting earnings of the industry.... Payment of the prepaid assessment, along with the payment of institutions' regular third quarter assessment, will be due on December 30, 2009. The FDIC estimates that it will collect approximately $​45 billion from total prepaid assessments.... While the prepayment will immediately improve the FDIC'​s liquidity, it will not have an impact on the fund balance." Chairman Bair said, "[​T]​he public should know that the discussions over the past several months have never been about the FDIC'​s ability to fulfill its commitment to depositors, but rather how that would be done. The FDIC'​s commitment to depositors is absolute, and we and the industry have more than enough resources to make good on that commitment. No depositor has ever lost a penny of an insured deposit and no depositor ever will." Also, the American Securitization Forum commented, "ASF welcomes the FDIC Board'​s unanimous action this morning to extend application of the FDIC'​s securitization rule to provide needed certainty to existing securitizations as well as those issued over the next few months. The application of this rule had been cast in doubt by accounting standards changes that will take effect for reporting periods after November 15th, 2009. Today'​s action by the FDIC Board will resolve this uncertainty and will allow bank securitizations of credit card and auto loans to resume, which in turn will make additional credit available to consumers at a critical time for the American economy."

Comments and lobbying over the SEC'​s "​Proposed Money Market Fund Reforms" continues. We just noticed the posting of "​Preserving the Ability of Money Market Funds to Invest in Second Tier Securities", which was submitted by the U.​S. Chamber of Commerce'​s Center for Capital Markets Competitiveness. The Powerpoint posted "challenges the basis for the proposed prohibition" and examines the "negative and unintended consequences of the proposed prohibition." It says of the $​46.​8 billion market, "The proposed prohibition would not have prevented the events of September 2008." It adds, "​100% backstop credit facilities are required for the A2/​P2 rating, but not for A1/​P1" and that the "​default risk of A1/​P1 is very similar to A2/​P2". Removing "​Tier 2" would cause: a "​reduced ability to diversify 2a-​7 portfolios," "​decreased flexibility and increased costs," and, a "​domino effect" as "​firms manage both 2a-​7 and non-​2a-​7 money for cash management vehicles."

"​Florida Investment Pool'​s Bank Dealings Probed by SEC" writes Bloomberg. The article says, "Wall Street firms that sold mortgage-​backed securities to a $​30 billion pool run by the state of Florida for local governments are under investigation for fraud by the U.​S. Securities and Exchange Commission. Lehman Brothers Holdings Inc., JPMorgan Chase & Co. and Credit Suisse Group AG may have misled officials overseeing Florida'​s Local Government Investment Pool in 2007 when they sold the securities without disclosing '​the risk and liquidity of investments,' the SEC said in an Oct. 17, 2008, letter to the State Board of Administration that runs the pool." It adds, "After the run on the fund, the state on Nov. 29, 2007, froze it, stopping all withdrawals. In December, Blackrock Inc., which was hired to advise the pool on its holdings, advised that it be split into two funds, with a new one created to hold assets tainted by the mortgage-​backed securities.... Florida Prime, which now has about $​5 billion under management, has eliminated two-​thirds of its bad holdings, replaced managers, increased oversight and secured a AAAm rating from Standard & Poor'​s, the highest for a money fund." Also, see Smart Money'​s "​Are Shrinking Money Funds a Bullish Sign?".

The Wall Street Journal'​s "​For Banks, Rate Rules Could Mean Tough Times" says, "Banks deemed to be less than '​well capitalized' by the Federal Deposit Insurance Corp. won'​t be allowed, starting Jan. 1, to pay more than 0.​75 percentage point above the U.​S. average. Just 4% of the nation'​s 8,​185 federally insured banks weren'​t well-​capitalized as of June 30. But weaker banks '​drive up costs for the rest of the industry' by offering unusually high rates to lure deposits, FDIC Chairman Sheila Bair said when the rule was announced in May." This is of course, good news for money funds, who have been forced to compete with a number of outlier banks paying distressed rates. In other news, the U.​K.-​based FT Adviser says "​The IMA will change the name of its Protected/​Guaranteed sector to Protected".

ICI'​s weekly "​Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $​2.​27 billion to $​3.​370 trillion for the week ended Wednesday, October 28, the Investment Company Institute reported today. Taxable government funds increased by $​1.​94 billion, taxable non-​government funds decreased by $​1.​28 billion, and tax-​exempt funds decreased by $​2.​93 billion. Assets of retail money market funds decreased by $​7.​40 billion to $​1.​096 trillion.... Assets of institutional money market funds increased by $​5.​13 billion to $​2.​274 trillion." Year-​to-​date, money fund assets have declined by $​491 billion, or 12.​8%. Retail funds have declined by 19.​0% YTD while Institutional funds have declined by 9.​8%.

We'​re baffled by the dovish reaction to the Federal Reserve'​s Statement yesterday. It said, "Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up.... Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.... The Committee will maintain the target range for the federal funds rate at 0 to 1/​4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Our admittedly optimistic (​for higher rates) read shows a Fed clearly starting to lean towards a hike. In other news, see FT'​s "​Money market funds need new global standards".

Yesterday'​s Wall Street Journal featured "​Jittery Companies Stash Cash" on the front page. The piece said, "Stung by the financial crisis, companies are holding more cash -- and a greater percentage of assets in cash -- than at any time in the past 40 years. In the second quarter, the 500 largest nonfinancial U.​S. firms, by total assets, held about $​994 billion in cash and short-​term investments, or 9.​8% of their assets, according a Wall Street Journal analysis of corporate filings. That is up from $​846 billion, or 7.​9% of assets, a year earlier.... Companies as diverse as Alcoa Inc., Google Inc., PepsiCo Inc. and Texas Instruments Inc. all reported big third-​quarter increases in cash holdings."

Investment Advisor'​s "​National Financial Adds to Sweep Options" writes, "Fidelity'​s National Financial has launched a new Bank Deposit Sweep Program, which enhances its existing single-​bank sweep program by offering its affiliated broker/​dealers the opportunity to sweep cash from customers' eligible brokerage accounts into interest-​bearing, FDIC-​insured bank accounts at up to eight different banks. The Sweep Program also offers tiered interest rates based on the brokerage account balances, consolidated statements and tax reporting, and account access that permits using the cash to cover securities purchases, and check and debit card transactions. Commonwealth Financial Network is the first independent B/​D to make the new sweep program available to its end clients." In other news, Moody'​s put out two releases Friday, "Moody'​s downgrades BGI Sterling Liquidity Plus Fund credit rating to A from Aaa" and "Moody'​s downgrades BGI LSF Euro Fund credit rating to Aa; confirms BGI LSF Sterling Fund Aaa credit rating", which say, "Moody'​s review focused on the impact on the fund of the restructuring of its holdings of Whistlejacket Capital, Ltd., a defaulted Structured Investment Vehicle."

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