Daily Links Archives: July, 2012

The Wall Street Journal writes "Money Funds Step Up Fight", which says, "Four of the largest mutual-fund companies and their industry group have shifted money to a lobbying campaign to fend off tighter regulations for the $2.5 trillion money-market fund industry, according to quarterly lobbying reports. They have hired former top aides to key lawmakers and held receptions for congressional leadership such as California Rep. Kevin McCarthy, the third-ranking Republican in the House. In all, the group has spent about $2 million to engage 20 lobbying firms over the past three quarters. That compares with just $580,000 spent on lobbying related to money-fund reform during the same nine-month period in the prior year.... Securities and Exchange Commission officials privately concede that the industry is winning the argument so far. SEC Chairman Mary Schapiro hasn't been able to convince two fellow commissioners to formally support the new money-market rules. Even so, she has distributed a 337-page draft proposal to fellow commissioners and is considering holding a public vote late next month, officials said. The lobbying intensified last fall after the collapse of closed-door talks between the SEC and the Investment Company Institute, the industry group backing mutual funds, the officials said." See also, FT's "The Achilles Heel of America's Financial System".

Fitch Ratings published "Primer: Window Variable-Rate Demand Bonds". It says, "Investments in variable-rate demand notes (VRDNs) have historically dominated portfolios of tax-exempt money market funds (MMFs).... [D]emand for these securities from prime MMFs has also increased mainly due to a lack of supply in the taxable short-term market. A new product referred to as window variable rate demand bonds (window VRDBs) purchased by tax-exempt MMFs offers a high-quality investment option and is designed to broaden portfolio diversification.... Despite the increased liquidity risk, all recent window VRDB issuances have been oversubscribed. The high level of investor interest reflects the relatively small number of window VRDBs issued to date and the scarcity of other higher quality investment options without exposure to the financial sector." In other news, see `The Boston Globe's "Fidelity Investments loses a state cash account", which says, "The state treasurer's office said it has awarded its $9.5 billion cash contract to Federated Investors Inc, moving the business away from Boston's Fidelity Investments, which has had the business for 35 years. Treasurer Steven Grossman said the state would save $8.2 million over three years, or 34 percent of the current cost, by moving the Massachusetts Municipal Depository Trust contract to Pittsburgh-based Federated. The trust is also known as MMDT."

The Wall Street Journal writes "Geithner: SEC Must Do More on Regulating Money-Market Funds". It says, "U.S. Treasury Secretary Timothy Geithner Thursday said money-market funds remain a risk to the financial system and argued the Securities and Exchange Commission has to push harder to change money-fund rules. Mr. Geithner, in response to questions from Sen. Bob Corker (R., Tenn.), argued that money-market funds were still vulnerable to runs that could hurt not just investors in the funds but the financial system as a whole." Geithner reportedly said to the Senate Banking panel, "My own judgment is that the SEC needs to go further. They can go further. And we should get on with the business of letting them expose to the world, to the markets, a set of options that the world can comment on." The Journal adds, "Mr. Corker expressed concern that calls for overhauling money-market rules aren't translating into action. An SEC plan to revamp money-market rules has stalled at the agency, where SEC Chairman Mary Schapiro doesn't appear to have the votes to issue a proposal.... If the SEC doesn't move on money funds, the Financial Stability Oversight Council, a newly created council of regulators headed by the Treasury secretary, could take action, Mr. Corker argued." See also, Bloomberg's "Fidelity Joins BlackRock in Weighing Libor Action Against Banks".

We're happy to annouce our third annual Crane's Money Fund University, which will be held January 24-25, 2013, at The Roosevelt Hotel in New York City. The preliminary agenda for our "basic training" event is now online (and available in PDF) and the MFU website (www.moneyfunduniversity.com) is live and taking registrations. Money Fund University will offer attendees an affordable and comprehensive day-and-a-half, "basic training" course on money market mutual funds. We cover the history of money funds, interest rates, Rule 2a-7, ratings, rankings, money market instruments such as commercial paper and repo, and portfolio construction and credit analysis. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing will benefit from our comprehensive program. Even experienced professionals can enjoy a refresher course and the opportunity to interact with peers in an informal setting. Last year's University in Boston attracted over 110 speakers, sponsors and attendees, and we expect an even a stronger showing in 2013. Attendee registration for Crane's Money Fund University is (again) $500. Exhibit space is $2,000 and sponsorship opportunities are $3K, $4.5K, and $5K, respectively. Note that our next big show, Crane's Money Fund Symposium, is scheduled for June 19-21, 2013 in Baltimore. Watch for details and the preliminary agenda to be posted this fall, and feel free to contact us for more information on either show.

Federated Investors writes "New York Fed Offers Up Woeful Redemption Restriction Idea". The July 23 comment says, "The Federal Reserve Bank of New York in a recent staff report on money market funds puts forth a proposal for a "minimum balance at risk" (MBR) which according to the authors "would be a small fraction of each shareholder's recent balances that would be set aside in the event they withdrew from the fund." Redemptions of the MBR could be delayed for thirty days, in the event of 'stress' or if the MMF 'breaks the buck'. The MBR is similar to the redemption restrictions or holdbacks that are among the draconian proposals for additional MMF regulation discussed by SEC, albeit refined a bit and with a catchy new name and acronym. Interestingly, there have numerous thoughtful and detailed comment letters filed with the SEC on the practical, technical and legal challenges associated with this approach which the authors of the report have apparently ignored. Redemption restrictions of any kind will destroy the essence of money market funds and the reason millions of investors, businesses, state/local governments and non-profits rely on the funds. The MBR would go against one of the foundational principles of all mutual funds -- that investors have the right to redeem their shares at any time. Recent studies have demonstrated the critical importance of 100 percent liquidity for MMF users. A 2011 SunGard investment study found that 80 percent of corporate treasurers and cash managers surveyed said immediate access to their funds is a major requirement of their cash investment policy. Furthermore, a recent study from Treasury Strategies reported that 90 percent of institutional MMF users would decrease or stop using the funds if there was any form of holdback -- and of those 55 percent would stop using MMFs entirely. In fact, the MBR or any redemption restriction would conflict with the investment policies of most government and institutional investors. Redemption restrictions would discourage investors from using MMFs in sweep accounts, retirement plans, securities lending and other investment programs. An MBR or holdback would significantly impact many of the popular aspects of MMFs for individual investors such as check writing and debit card access. While the New York Fed's floating of the MBR leaves out many details that would still need to be worked out by regulators, any redemption restriction sought to be enacted by the SEC would wreak havoc on the MMF industry as there are no practical means of implementing it."

Reuters writes "S&P drops 'AAAm' rtg on two BNP Paribas money market funds". The article explains, "Standard & Poor's Ratings Services said today that it has withdrawn its 'AAAm' principal stability fund rating on BNP Paribas GLF -- BNP Paribas GLF Euro and on BNP Paribas InstiCash EUR Government, two euro-denominated money market funds domiciled in Ireland and Luxembourg respectively. BNP Paribas Asset Management, the funds' investment advisor, has requested the withdrawal of the rating, given the low asset size of these two funds and the current market conditions. As of July 19, 2012, net assets stood at EUR373.49 million and EUR123.41 million for the BNP Paribas GLF Euro fund and the BNP Paribas InstiCash EUR Government, respectively. At the time of the withdrawal, the funds' risk profile was consistent with the requirements set out under our 'AAAm' principal stability fund rating criteria.... BNP Paribas Asset Management is responsible for the management of five other money market funds that Standard & Poor's rates 'AAAm': BNP Paribas InstiCash EUR, BNP Paribas InstiCash USD, BNP Paribas InstiCash GBP, BNP Paribas GLF -- BNP Paribas GLF USD, and BNP Paribas Money Market Funds -- BNP Paribas Money Prime Euro."

A news brief entitled, "ABA Board Votes to Support Two-Year Extension of TAG Program" sent out by The American Bankers Association last week says, "The ABA Board of Directors yesterday -- at the recommendation of the ABA Government Relations Council's Administrative Committee -- voted to support a two-year extension of the Transaction Account Guarantee program that is slated to expire at the end of the year.... The ABA Board emphasized, however, that there will be no "quid pro quo" for extending TAG -- particularly no language raising the credit union member business-lending cap -- and ABA will adamantly oppose any amendment or other additions to the TA's enabling legislation that would be detrimental to the business of banking. The decision to support a TAG extension comes a week and a half after the FDIC provided key information on the program's performance that both ABA and House Financial Institutions Subcommittee Chairman Shelley Moore Capito (R-W.Va.) had aggressively sought. During ABA's deliberative decision-making process, it also has gathered a multitude of opinions from across the industry on the extension issue. In making the decision to support a two-year TAG extension, the ABA Board noted that while the economy has generally improved, that improvement has not been robust, and many areas of the country still suffer from the economic downturn. Recent evidence also suggests that the economy has again slowed considerably and uncertainty about the future pace of the economic growth has risen.... The ABA Board believes that extending the TAG program for two years is consistent with the Fed's actions and will help to promote economic stability, facilitate job growth and reduce uncertainty. While it is difficult to move any bill through the current Congress in the hyper-partisan environment of an election year, ABA will marshal its resources to obtain the introduction and passage of the TAG extension's enabling legislation."

Reuters writes "Sheila Bair urges prompt reforms for money market funds". The article says, "If the Securities and Exchange Commission does not beef up its oversight of money market funds, a council of regulators should take the reins, former U.S. bank regulator Sheila Bair said on Thursday. Bair, who formerly chaired the Federal Deposit Insurance Corp, applauded the reforms that SEC Chairman Mary Schapiro has floated to bolster the funds, four years after a fund "broke the buck," letting its shares tumble before a dollar a piece and rattling markets. But Bair, in a letter to regulators, said that if Schapiro cannot get the votes needed to push the rules through, the Financial Stability Oversight Council should step in." Also, the latest weekly "Money Market Mutual Fund Assets release says, "Total money market mutual fund assets decreased by $12.25 billion to $2.539 trillion for the week ended Wednesday, July 18, the Investment Company Institute reported today. Taxable government funds decreased by $11.39 billion, taxable non-government funds decreased by $400 million, and tax-exempt funds decreased by $460 million." Finally, Bloomberg wrote yesterday, "BNY Mellon Considering European Deposit Fees After ECB Cut", which said, "Bank of New York Mellon Corp. (BK), the world's largest custody bank, is considering imposing a charge for holding client cash in Europe, after the European Central Bank cut its deposit rate to zero.... BNY Mellon, along with other money fund managers, this month restricted deposits into its European money funds, after the ECB decision left them unable to park cash with the central bank at a profit. Last year, BNY Mellon said it would impose a temporary fee for "excess" deposits in the U.S., after the debate over an extension of the country's debt ceiling prompted clients to move assets into cash. The fee was never levied on clients, Gibbons said."

Former SEC Commissioner Paul Atkins writes in The American Enterprise Institute's The American publication, "Mistaken Ideas about Money-Market Funds". He says, "Proposed regulations by the SEC are bad for investors, threaten the ability of money-market mutual funds to provide capital, and would pose serious economic risks. For more than 40 years, money-market mutual funds have helped businesses, states, and municipalities meet their financial needs by purchasing their short-term debt. But now, Washington bureaucrats threaten to impose major changes to the structure of these funds, supposedly to decrease risk in the financial system. Remarkably, the current discussion comes just two years after the Securities and Exchange Commission tightened credit standards, shortened maturities, and increased disclosure requirements for money-market mutual fund assets.... One change would require funds to publish the value of the funds' shares at more specific prices, rather than rounding their net asset value (NAV) to the nearest penny as they do currently. The intent of the proposed change is to highlight the technicality that the funds' NAV actually "floats" within a very narrow range around a dollar. However, because these historical variances are so immaterial and temporary (usually from 1/5 to 1/10 of a penny or less) money-market mutual funds report their prices just as every other mutual fund does -- rounding to the nearest penny. Reporting prices to a tenth of a penny just for floating's sake would force costly new accounting and tax reporting for all investors and would prevent many institutions and government entities from investing in the funds. Is that worth showing a change of $0.001 per day in share prices? ... A third change would limit fund investors' right to receive all their money upon redemption of their shares. Such a restriction would conflict with liquidity requirements in the investment policies of many government and institutional investors and would destroy a key benefit for all investors seeking modest market returns in exchange for flexibility and liquidity."

Attorney Melanie Fein has posted yet another comment letter on the SEC's President's Working Group Report on Money Market Fund Reform (Request for Comment) website. This one blasts Federal Reserve Bank of Boston President Eric Rosengren's most recent speech on money market fund reform. Fein writes, "This letter comments on your recent speech entitled "Our Financial Structures--Are They Prepared for Financial Instability?" delivered on June 29, 2012, in which you again address the subject of money market funds ("MMFs"). Your speech reflects a new direction in the Fed's thinking on MMFs based on a more fact-based analysis targeting a specific problem within the Fed's own jurisdiction. By focusing on sponsor support for bank-affiliated MMFs, you have highlighted a significant source of moral hazard and systemic risk in the financial system that needs addressing. In particular, your recognition that bank-affiliated MMFs have required disproportionately higher levels of sponsor support in recent years than other MMFs pinpoints the problem at its source. Your proposal for addressing the problem, however, is perplexing. Your proposal -- to require banking organizations to calculate the amount of support that their affiliated MMFs will likely require under different stress scenarios, and thereby assure the public that such funds are safe and guaranteed by their sponsors -- will increase, not decrease, moral hazard and systemic risk. The mere fact that the Federal Reserve is advocating such a proposal creates a public perception and expectation that bank-affiliated MMFs are guaranteed -- a hazard complained of in your last speech."

Yesterday's Financial Times wrote "Clouds gather over money market funds". The article said, "Earlier this month the European Central Bank took the unprecedented step of slashing the interest rate on its deposit facility from 25 basis points to zero, alongside a cut in its headline interest rate. Until last week, when the cut was implemented, banks had been keen to borrow short-term, often overnight, cash from money market funds and earn a carry by depositing it with the ECB. But with this option no longer viable rates have plunged, with some banks now paying zero or negative yields for anything up to three-month money. This move will eat into the already pitiful yield ultra-conservative money market funds are currently generating; euro government funds boasted an average running net yield of just 2bp, even before the ECB announcement, according to iMoneyNet."

A press release entitled "BlackRock to Report Second Quarter 2012 Earnings on July 18th says, "BlackRock, Inc. today announced that it will report second quarter 2012 earnings prior to the opening of the New York Stock Exchange on Wednesday, July 18, 2012. Chairman and Chief Executive Officer, Laurence D. Fink, and Chief Financial Officer, Ann Marie Petach, will host a teleconference call for investors and analysts at 9:00 a.m. ET. BlackRock's earnings release and supplemental materials will be available via the investor relations section of www.blackrock.com, before the teleconference call begins.... Members of the public who are interested in participating in the teleconference should dial, from the United States, (800) 374-0176, or from outside the United States, (706) 679-8281, shortly before 9:00 a.m. ET and reference the BlackRock Conference Call (ID Number 95008161)." Federated Investors also "will report financial and operating results for the quarter ended June 30, 2012 after the market closes on Thursday, July 26, 2012. A conference call for investors and analysts will be held at 9 a.m. Eastern on Friday, July 27, 2012. President and Chief Executive Officer J. Christopher Donahue and Chief Financial Officer Thomas R. Donahue will host the call. Investors interested in listening to the teleconference should dial 877-407-0782 (domestic) or 201-689-8567 (international) or visit FederatedInvestors.com for real time Internet access."

WSJ: writes "European Funds Lock the Doors". It says, "The European Central Bank's decision to drop short-term interest rates to record lows is rippling through financial markets, driving down the euro and forcing money funds across the region to close to new investors." See also, ICI's latest "Money Market Mutual Fund Assets" shows money fund assets rebounding in the latest week. The release says, "Total money market mutual fund assets increased by $18.56 billion to $2.551 trillion for the week ended Wednesday, July 11, the Investment Company Institute reported today. Taxable government funds decreased by $790 million, taxable non-government funds increased by $19.57 billion, and tax-exempt funds decreased by $220 million." Finally, see too, Treasury Today's "MMFs face some harsh realities", which says, "When the ECB cut its main rates by a quarter of a percentage point to below 1% last Thursday, the central bank also lowered the deposit rate from 0.25% to zero, resulting in a significant reduction in yields in the European money markets. Fund providers who monitor these markets daily make -- sometimes severe -- decisions based upon what they deem best for their shareholders."

A press release entitled, "Fitch 'AAAmmf' Rated European MMFs Face 'What If' Scenarios for Eurozone" says, "Fitch Ratings has considered several scenarios for the eurozone to perform a 'what if' analysis on the resiliency and stability of 'AAAmmf'-rated money market funds (MMFs). Fitch considers three distinct scenarios in order to analyze potential implications for 'AAAmmmf'-rated MMFs. Fitch's base case remains that the eurozone will muddle through the sovereign debt crisis as a currency union and that no country will abandon the euro. SCENARIO 1: Eurozone Exit by one Peripheral Country. Based on this analysis, Fitch believes that 'AAAmmf'-rated European money market funds are resilient in the hypothetical scenario of orderly exit from the eurozone by a peripheral country. As a result, Fitch-rated MMFs may continue to be rated 'AAAmmf' under this scenario. 'AAAmmf' rated European MMF are not directly exposed to peripheral eurozone countries, i.e. Greece, Ireland, Italy, Portugal and Spain. As of May 2012, euro and sterling denominated funds have an average of 70% of assets invested in issuers from core European countries and 30% outside the eurozone.... A more disorderly scenario, involving material contagion to banks and core eurozone countries, could lead to a severe market stress, that may include a shutdown of interbank markets affecting the liquidity of MMFs, similar to that experienced in 2008. In this more stressful scenario in which the EU/ECB policy response fails to control the situation, a 'flight to quality' by depositors and investors in other peripheral countries could precipitate bank runs, capital flight and a loss of government market access. In this second, more severe scenario, Fitch believes redemption restrictions by some weaker MMFs, or those without well-resourced sponsors, is a possibility and could be implemented by fund sponsors or imposed by regulators to protect remaining investors and avoid forced selling."

The Wall Street Journal writes "Money-Fund Buffer May Be Set at Under 1%". The article says, "The Securities and Exchange Commission is considering requiring money-market mutual-funds to hold a "small" capital buffer of less than 1% of the overall value of a fund's holdings, a senior SEC official said Tuesday. Bob Plaze, a senior official in the SEC's investment-management division, for the first time publicly signaled the general size of a capital buffer the agency is weighing that would insulate money funds from sudden losses in the values of their holdings. He said it would be less than 1%, speaking at a legal panel here. SEC Chairman Mary Schapiro is pushing her divided agency toward a vote on tougher rules for the $2.5 trillion industry as early as this month. SEC staff distributed a 337-page draft proposal to the agency's five-member commission last week, but its details have yet to be made public." The piece adds, "Even a small buffer of under 1% could require the money-fund industry to set aside billions of dollars to insure against potential losses. But Mr. Plaze said the amount of capital each fund would have to post would vary, based on the risk of the investments in the fund -- corporate debt, government securities or bonds issued by states and localities." See also, WSJ's "Sub-Zero Rates Risk Freezing Europe's Money Markets".

The Wall Street Journal writes "Firms Close European Money-Market Funds to New Investment". It says, "J.P. Morgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and BlackRock Inc. (BLK) are closing their European money-market funds to new investment after the European Central Bank slashed deposit rates to zero. These funds and others have struggled to provide returns to investors since central banks in Europe, the U.S. and Japan cut interest rates to near zero during the recent financial crisis. The ECB has held rates slightly above those of the Federal Reserve and Bank of Japan, but the deposit-rate cut and a 25-basis-point reduction in its benchmark lending rate Thursday signaled that the days of European funds enjoying slightly higher yields may be ending. By closing the funds to new investment, the fund managers are protecting their current investors by not dividing the meager returns earned among more stakeholders." The WSJ piece adds, "Of the total $137 billion in euro-denominated money market funds, J.P. Morgan manages about $30 billion, BlackRock manages about $23 billion and Goldman Sachs manages about $13 billion, according to Peter Crane, president of Crane Data.... European funds were yielding 0.14% as of Thursday, according to Peter Crane, president of Crane Data. It would take about a month for the cut in ECB rates to bring down yields even further. By contrast, U.S. money-market funds are yielding, on average, 0.06%, Mr. Crane said."

Bloomberg writes "JPMorgan, Goldman Shut Europe Money Funds After ECB Cut". The article says, "JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. and BlackRock Inc. (BLK) closed European money market funds to new investments after the European Central Bank lowered deposit rates to zero. JPMorgan, the world's biggest provider of money-market funds, won't accept new cash in five euro-denominated money-market and liquidity funds because the rate cut may result in losses for investors, the company said in a notice to shareholders. Goldman Sachs won't accept new money in its GS Euro Government Liquid Reserves Fund, and BlackRock, the world's largest asset manager, is restricting deposits in two European funds.... The ECB yesterday reduced its benchmark rate to a record low of 0.75 percent and took its deposit rate to zero. Money funds have been struggling to invest client assets at a profit as interest rates globally are near record lows and Europe's sovereign debt crisis has reduced the supply of available debt. Managers have been forced to cut fees to keep customer returns above zero, and some have abandoned the business. All three firms said the restrictions are temporary and they will monitor market conditions. Investor redemptions from the funds are not being limited." The JPM funds involved include: JPMorgan Euro Liquidity Fund, Euro Government Liquidity Fund, Euro Money Market Fund, and Euro Liquid Market Fund. The Bloomberg piece adds, "[JPMorgan] had $417 billion in money fund assets as of May 31, making it the world leader, according to Crane Data LLC, a research firm based in Westborough, Massachusetts. The entire euro-denominated money fund industry has about 108 billion euros, Crane Data's statistics show."

ICI's latest weekly "Money Market Mutual Fund Assets" report says, "Total money market mutual fund assets decreased by $5.31 billion to $2.533 trillion for the week ended Wednesday, July 4, the Investment Company Institute reported today. Taxable government funds decreased by $3.44 billion, taxable non-government funds decreased by $6.68 billion, and tax-exempt funds increased by $4.81 billion. Assets of retail money market funds increased by $3.80 billion to $887.75 billion. Taxable government money market fund assets in the retail category increased by $690 million to $188.43 billion, taxable non-government money market fund assets increased by $690 million to $511.97 billion, and tax-exempt fund assets increased by $2.42 billion to $187.36 billion. Assets of institutional money market funds decreased by $9.11 billion to $1.645 trillion. Among institutional funds, taxable government money market fund assets decreased by $4.12 billion to $684.87 billion, taxable non-government money market fund assets decreased by $7.38 billion to $873.06 billion, and tax-exempt fund assets increased by $2.39 billion to $87.06 billion. ICI reports money market fund assets to the Federal Reserve each week. Revisions are due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." Year-to-date in 2012, money market mutual fund assets have declined by $162 billion, or 6.0%, and over 52 weeks assets have declined by $150 billion, or 5.6%.

Reuters writes "Northern Trust support shows money fund wrangle". The article says, "Oslo may seem far removed from Chicago, but the downgrade of a Norwegian lender's debt rating last fall led U.S.-based Northern Trust Corp to step in with $69.7 million of support for two of its money market funds. The unusual backstop -- shown in filings and which the Chicago trust bank acknowledged to Reuters -- has become a flashpoint in the debate over the future of the $2.5 trillion U.S. money fund industry. At a time when regulators are urging tighter rules for the funds, some specialists say the support shows how even developments in distant lands can affect fund companies.... Northern Trust executives would not comment on the policy debate, but sent a statement to Reuters describing the support as a routine decision after Moody's Investors Service downgraded the Norwegian lender, Eksportfinans, in November when it lost its role as sole operator of an export loan system. Eksportfinans notes were held by two money funds that Moody's would have downgraded as well, Northern Trust said, had it not bought the paper. Northern Trust said the notes paid off at par, meaning it did not suffer losses. Others say even though the notes paid off, the support shows how the fund sponsor took on some extra cost and risk."

Bloomberg writes "Morgan Stanley Pushed S&P to Boost Ratings, Investors Say", which discusses some aspects of a lawsuit involving star-crossed SIV Cheyne Finance, a major cause of losses for some money fund sponsors during the 2007-2008 subprime liquidity crisis. The article says, "Morgan Stanley successfully pressured Standard & Poor's and Moody's Investors Service Inc. to give erroneous investment-grade ratings in 2006 to $23 billion worth of notes backed by subprime mortgages, investors claimed in a lawsuit, citing documents unsealed in federal court. Executives at the ratings firms failed to warn investors about the risks associated with subprime-backed notes that were issued by a unit of London-based hedge fund Cheyne Capital Management Ltd. because they wanted to reap financial rewards from doing business with Morgan Stanley, the sixth-largest U.S. bank by assets and designer of the notes, the investors allege, citing the material made public today in Manhattan.... The lawsuit was filed in 2008 by Abu Dhabi Commercial Bank, based in the United Arab Emirates, and Washington's King County, which includes Seattle. The lawsuit focuses on notes issued by Cheyne Finance Plc, a so-called structured-investment vehicle that collapsed in 2007. SIVs issued short-term debt to fund purchases of higher- yielding long-term notes and failed when credit dried up amid the financial crisis, sparked by investments in mortgage-backed securities."

The Wall Street Journal writes "Money Funds Buck Euro-Zone Retreat". It says, "At a time when many money-market mutual funds are piling out of Europe, some are looking for more of it in their quest for higher returns. Eight of the 20 money funds with the most exposure to Europe, as measured by total assets at the end of May, increased their euro-zone holdings between last August and May 31, according to iMoneyNet, a research firm in Westborough, Mass. Managers of the eight money-market mutual funds that ramped up their European holdings include BlackRock Inc. and Goldman Sachs Group Inc.. Officials at such funds insist they aren't taking bigger risks, noting their heightened exposure to Europe is coming through short-term "repurchase agreements" issued by European banks.... Yields on repos backed by Treasurys have jumped to an annualized 0.17%, up from 0.11% in August, according to the Depository Trust & Clearing Corp., a securities clearinghouse. In contrast, the average annualized yield on money funds has shriveled to 0.06%, down from 5% in mid-2007, says researcher Crane Data LLC."