News Archives: November, 2007

Money Funds Seeing Inflows From Government Investment Pool Woes. The flow of cash from lightly regulated and non-AAA rated local government investment pools into money market mutual funds has accelerated over the past week as Floridian and other cities and towns seek a safer haven for their cash balances. Investors in the frozen $15 billion Florida State Board of Administation's Local Government Investment Pool, which astonishingly attempted to stop its bleeding by halting redemptions (see our News from yesterday "State Board Halts Redemptions in Florida Local Govt Investment Pool"), are moving balances into money funds. The Palm Beach Post quotes County School District Treasurer Leanne Evan, "We are looking for a safe place to put taxpayer dollars." The South Florida Business Journal adds, "The county [Palm Beach] said it is investing incoming funds in money market accounts offered by AIM Investment and Federated Investors and is looking into other short-term investments." Florida's move and aggressive investing has already damaged the $300+ billion local government investment pool market. Fortunately, most other state pools are AAA rated and sport yields similar to money funds. See also Bloomberg "Florida Schools Struggle to Pay Teachers as Investments Frozen".

Weekly Money Fund Assets Jump $27 Billion to Record $3.07 Trillion. Assets of money market mutual funds appear impervious to concerns over ABCP, SIVs, LGIPs, and "enhanced cash" funds, rising $127 billion month-to-date in November. ICI's latest statistics show total money fund assets rising $26.75 billion to a record $3.073 trillion for the week ended Nov. 28. Institutional assets rose by $18.96 billion to a record $1.941 trillion, while Retail assets rose by $7.79 billion to a record $1.132 trillion. ICI also reported official month-end assets for October. Money funds rose by $115.4 billion for the calendar month and have risen by $613.8 billion YTD through 10/31. Total mutual fund assets rose by a massive $435 billion in October, breaking above the $12 trillion mark for the first time. Liquid assets of stock mutual funds rose to 3.9% in Oct. from a record low level of 3.6% in Sept. Also, see ICI's "Frequently Asked Questions About Money Market Funds". Separately, the Federal Reserve Board of Governors reported that commercial paper rebounded by $12.8 billion to $1.854 trillion in the latest week.

State Board Halts Redemptions in Florida Local Govt Investment Pool. Following concerns about a handful of downgraded and defaulted SIV holdings and fed by a Bloomberg article, "Florida School Fund Rocked by $8 Billion Pullout", the Florida State Board of Administration today voted to halt redemptions in its Local Government Investment Pool. The pool had been drafting a bailout plan, but Florida Governor Charlie Crist and CFO Alex Sink decided to freeze withdrawals while crafting a possible bailout plan. Exeptions may be made for payrolls. (For info from the pool, click here.) On an emergency call today, Executive Director Coleman Stipanovich said that $10 billion has fled the now $15 billion pool. The state board on Dec. 4 may seek "credit protections for the pool against the potential for default by approximately $1.5 billion in securities from four issuers: Axon Financial, KKR Atlantic, KKR Pacific, Ottimo Funding and Countrywide". The pool had said it will seek a AAAm (money market) rating and adopt more money fund-like investment policies in the future. But it likely faces eventual liquidation following today's decision. While some government investment pools invest like money market funds, the majority stray beyond money funds' strict Rule 2a-7 quality, maturity, and diversity guidelines. (See also Bloomberg, MarketWatch and Orlando Sentinel stories.)

"Money Market ETFs" Not True Money Markets But Enhanced Cash. TheStreet.com recently wrote "Money Market ETF Not as Safe as it Appears", describing a new Powershares VRDO Tax-Free Weekly Portfolio (PVI). The ETF invests in tax-exempt variable-rate demand notes, a staple of tax-exempt money market funds, and "seeks to replicate the Thomson Municipal Money Market Data VRDO Index. TheStreet incorrectly terms this new exchange traded fund a "Money Market", but PowerShares makes no such claim. Other ETFs -- iShares Lehman 1-3 Year Treasury Bond, SPDR Lehman 1-3 Mo T-Bill ETF, and the pending Bear Stearns Current Yield Fund -- have bordered on money markets but are really "cash plus" or "enhanced cash". None to-date offers the liquidity, safety and yield of a true money market fund. The Powershares launch is ill-timed given concerns in the municipal market over bond insurers, and given concerns over "enhanced cash" funds in general.

Peter Crane Tells Bloomberg TV's "Starting Bell" Money Funds Still Fine. Crane Data Founder & President Peter Crane appeared this morning on Bloomberg TV's "Starting Bell" program to talk about money market mutual funds. Crane discussed recent stress in the money markets and minimized its impact to date on money market mutual funds. He said, "Investors shouldn't be worried," and explained why money fund investors have remained well protected from the market turmoil by money funds' mandates of broad diversity and high quality investments. And he discussed why fund advisors' deep pockets continue to shelter investors from any fallout. Crane also talked about the pending M-LEC, master liquidity enhancement conduit, or super fund, designed to backstop the SIV, or structured liquidity vehicle market, and about HSBC's recent decision to support their SIVs. He said the HSBS news is "good news" for money funds. (Click here to see video.)

HSBC Moves SIVs, Structured Investment Vehicles, Onto Balance Sheet. The biggest bank in Europe, HSBC, says it will bring $35 billion of affiliated SIV assets onto its balance sheet, supporting the assets of Cullinan Finance Ltd., one of the largest SIVs, and Asscher Finance Ltd.. HSBC tells the Wall Street Journal, "The SIV sector has been under significant funding pressure since July 2007, as evidenced by the inability of most SIVs to fully roll over their senior funding in the form of commercial paper or medium term notes." Bloomberg quotes Stuart Gulliver, CEO corporate and investment banking, "HSBC's actions will set a benchmark and restore a degree of confidence to the SIV sector, while providing a specific solution to address the challenges faced by investors in Cullinan and Asscher." The Journal article adds, "[T]he new vehicles will be funded either by commercial paper backed by a 100% liquidity facility, or by term financing, both to be provided by HSBC itself." HSBC will allow investors in Cullinan and Asscher the "option to exchange their existing income and mezzanine notes for notes issued by one or more new vehicles," says WSJ. S&P recently said rated money funds own $6.34 billion in Cullinan debt, the second largest SIV program exposure. Asscher was not listed among holdings.

Money Market Fund Assets Continue Increase, Retail Investors Join Surge. The Investment Company Institute's latest weekly asset totals show money market mutual funds increasing by $21.4 billion to a record $3.047 trillion. Retail fund assets led the increase this week, rising by $19 billion to a record $1.124 trillion. Institutional assets rose by $2 billion to a record $1.923 trillion. Government institutional assets rose $19.1 billion and government retail assets rose $6.1 billion. Non-government institutional assets fell $18.7 billion and non-govt retail rose $9.2 billion. Money fund investors continue to be unfazed by ongoing SIV and ABCP-related turmoil to date, correctly surmising that they will be protected by fund advisors via purchases of troubled securities or credit enhancements. Money fund assets have increased by over $100 billion month-to-date in November, following increases of approximately $92 billion in October, $78 billion in September, and a record $193 billion in August. Year-to-date, money fund assets have increased by $665 billion, or 27.9%. Over 52 weeks, assets have grown by $736 billion, or 31.8%.

Columbia, SSgA Reorganizations Impact Liquidity and Fixed Income Units. Heads are rolling at two of the hardest hit advisors in the recent credit crisis. The Wall Street Journal reports that Columbia Management has formed a new "Fixed Income Investments and Liquidity Strategies" area to be headed by Stephen Preacher. Money market fund CIO Randy Royther will report to Preacher. Columbia appointed a new head of product management, Michael Pelzar, and some added responsibilities for the firm's chief investment officer, Colin Moore." State Street Global also made changes, announcing the departures of CIO Sean Flannery and head of fixed income Paul Greff. Columbia is the 7th largest money fund manager with $151 billion, according to Crane Data's Money Fund Intelligence XLS Family rankings, and SSgA is the 19th largest money fund manager with $39 billion. Expect to see additional changes among money market and bond personnel as participants take steps to remedy, prevent, and assign blame for overzealous mortgage investing.

SIV Exposure In Rated Money Market Funds Has Decreased Significantly. Standard & Poor's has released "SIV Exposure In Rated Funds Drops More Than 40% In Two Months" which shows that funds have reduced SIV exposure dramatically over the past two months. S&P says 87 rated funds had exposure to a total of approximately $50 billion of SIVs, a decline of 42% from "$86 billion in SIV exposure among 109 rated funds at the end of August.... This decrease can be largely attributed to maturity of existing holdings, but there have been a few instances in which the sponsors of rated funds purchased SIV holdings." The average SIV holding is "6.25% and the average holding size of any one SIV issuer is 1.35%". S&P's Peter Rizzo says the total SIV average is down from 14%. The most widely held SIVs by rated funds are: Sigma Finance ($7.5 billion), Cullinan Finance ($6.3 bil.), Links Finance ($6.3 bil.), K2 Corp. ($3.6 bil.), and Beta Finance ($2.9 bil.). S&P includes a full table of SIV program exposures. Among nonbank SIVs, Cheyne Funding represents $1.4 billion in total exposure for rated funds while Axon Financial represents $1.3 billion. S&P rates nearly 500 money funds with over $2 trillion in assets. Almost 25%, or $500 billion, is held in the 10 largest rated funds. S&P expects continued decreases in SIV exposure, and adds, "To date, we have not taken rating actions ... due to the proactive measures fund sponsors are taking to protect the funds net asset values (NAVs)."

More Stories on Enhanced Cash and Ultra-Short Bond Fund Troubles. Today, two more stories describing woes with money fund competitors appeared -- Bloomberg writes "Federated Investors Bails Out Cash Fund After Losses" and Kiplinger's writes "Ultra-Short: Still Ultra-Safe?". The Bloomberg piece describes two bailouts and one buck-breaking among the handful of 3c-7 "enhanced cash" funds, "private partnership[s] open only to accredited investors". Kiplinger's discusses "Two bond funds designed to beat money-market funds with little extra risk and sponsored by two of the industry's titans are sitting on stiff year-to-date losses, leaving shareholders shocked," saying that Fidelity Ultra-Short Bond Fund (FUSFX) has lost 4.3% and SSgA Yield Plus has lost 8.1% year-to-date. "[T]he damage to the Fidelity and SSga funds ... calls into question whether any ultra-short bond fund is a safe alternative to a money-market fund.... If you want total safety, you're better off going with a money fund," says Kiplinger's.

Are Money Market Mutual Fund Sponsors Under The Most Stress Ever? Bloomberg writes, "Money Fund Sponsors May Be Under Most Stress Ever, Moody's Says", quoting Moody's Investor Service's Henry Shilling, "You're seeing more stress perhaps than we've ever seen before both in terms of the number of issues that are involved and the aggregate market value of the troubled securities." The article says, "The 10 largest managers of U.S. money-market funds owned a total of about $50 billion in short-term debt of SIVs, some of which has defaulted." Seven advisors to date -- Columbia, Credit Suisse, Evergreen, First American, SEI, STI, Western Asset -- have acted to date to shore up funds or to prevent "losing their top credit ratings". Moody's cites 145 cases prior to 2007 when sponsors acted to protect funds, the bulk of which occurred in 1994. Our Peter Crane disagrees with Moody's most dire assessment, saying in the Bloomberg piece, "The difference in 1994 is that everyone was under duress [due to rising rates].... The funds affected now are just a slice of the money-fund universe." Crane says assets breaking $3 trillion has also helped "fund managers mitigate exposure to the distressed debt".

Institutional Investors Shift to Money Funds from Direct Investments. Companies have made significant shifts in their short-term investment portfolios since the ABCP Panic began in August. While a flight-to-quality has been evident, less noted has been the massive shift into money market mutual funds of all types and away from direct money market investments, particularly asset-backed commercial paper, CP and more illiquid offerings like auction-rate securities. Money fund assets have increased by $418 billion, or 16%, since August 1, with over half of these gains going to "Prime" money funds. A recent presentation, "So Much Cash, So Little Time," at a Treasury Management Association of New England (TMANE) meeting by Greg Fortuna of State Street's Globallink discussed the trend. Fortuna estimated that the typical developing company has reduced its allocation to CP/Repo from 50-60% pre-credit crunch to 20-25% post-credit crunch with almost all of the decrease moving to money market funds. State Street Global Markets's "Cash Positioning" illustration shows money funds now accounting for 30-35% of the average company's holdings, while demand deposit accounts (DDA) have remained steady at 4-7% and externally managed cash has increased from 35-40% to 40-45%.

"Money Funds Have Weathered Stormy Market, So Far" Arizona Republic. The Sunday article quotes Pete Crane saying, "The current crisis for money markets is beginning to resemble 1994 in scope and magnitude, though nobody has broken the buck and the odds are against it." It adds that Liz Ann Sonders, chief investment officer of Charles Schwab, says "[S]he too sees very little risk of any funds breaking the buck." We also told the AZ Republic that money funds have the benefit now of both rising asset levels, which dilute any problems with selected securities, and falling short-term interest rates, which raise the value of the remaining portfolio securities.

WSJ Says First American Funds Bailed Out, Backing Cheyne SIV Holdings. Today's Wall Street Journal features a story entitled, "More Money-Market Funds Hit Trouble", which says that U.S. Bancorp subsidiary First American Advisors' previously had "purchased all Ottimo Funding Trust secured liquidity notes held" by the First American Prime Obligations Fund. The company also entered into a credit agreement to protect its holdings in SIV Cheyne Finance LLC. CEO Richard Davis was quoted saying, "U.S. Bancorp would support all affected funds." An update on First American Prime Obligations holdings may be seen here; their August statement is here. The Journal also noted that RiverSource Cash Management "has a tiny percentage in the security." The piece adds, "[O]ther funds also were holding Cheyne-related holdings, although in small quantities.... Valic II Company fund, offered by a unit of American International Group Inc., held less than 1% of its $337 million in assets in one Cheyne security as of early September." The article emphasizes, "No money market fund has broken the buck in the recent turmoil."

What Me Worry? Investors Drive Money Fund Assets Beyond $3 Trillion. Institutional and retail investors continue to ignore a paranoid press, pushing money market mutual fund assets solidly above $3 trillion to a new record high. The Investment Company Institute reports that money fund assets increased by $24.74 billion to $3.025 trillion in the week ended Nov. 14. Institutions continue to fuel the surge, adding $17.23 billion to funds to hit a record $1.921 trillion. But retail investors also joined the party, adding $7.51 billion to funds to hit a record $1.105 trillion. Over the past 52 weeks, institutional assets have risen by an astounding $577 billion, or 42.9%, while retail assets have risen by a respectable $161 billion, or 17.0%. Investors continue to be unfazed by recent problems with structured investment vehicles (SIVs), by August's asset-backed commercial paper seizure, and by a handful of bailouts and small losses in enhanced cash funds. Quarterly tax outflows could temporarily halt the advance next week, but even greater concerns over investments with true subprime and mortgage exposure should pushing assets towards the safety of money fund gains.

GE Enhanced Cash Trust Redeeming Holdings at 96 Cents Says Barron's. Barron's put out the article, "Mortgage Woes Damage a GE Bond Fund" late Wednesday, saying that GE Asset Management's $5.6 billion Enhanced Cash Trust is offering investors to "redeem their holdings at 96 cents on the dollar". Reuters initally incorrectly reported that this was a money market fund, but has since corrected its story. This is not a "money market fund", and no "2a-7" money funds have broken below $1.00 a share. GE, though, becomes the first "enhanced cash" fund to publicly "break the buck", though of course these funds never pledged to maintain stable NAVs. Crane Data estimates that these "3c-7" private placement "cash plus" and "enhanced cash" fund assets total $120 billion, down from $150 billion just weeks ago. GE says its other cash plus and money market funds are unaffected by the move. Federated recently reimbursed investors $4.9 million for losses in its enhanced fund and exited the sector, and Columbia's set aside $300 million to protect its mammoth Strategic Cash portfolio. See also Bloomberg's "GE Bond Fund Investors Cash Out After Losses From Subprime".

Barrage of Money Market Funds Buying Out or Shielding SIV Stories. Numerous stories on money market funds taking action to protect or remove their troubled SIV holdings hit today, including a front page one in USA Today, "Money market funds at risk?". The article says Bank of America "set aside $600 million to cover potential losses in its [Columbia] money market funds [$300 million] and an institutional cash fund [$300 million]," which is "not technically a money fund". (We assume the latter is the mammoth $40 billion plus Columbia Strategic Cash, or 'StratCash', an "enhanced cash," "3c-7" private placement fund.) The article also clarifies that Legg Mason "set up a $238 million line of credit for two money funds" and "invested $100 million to buoy an offshore money fund." The New York Times, on page 1 of the Business section, writes "Investor Safe Haven Becomes a Concern. It reveals that Wachovia may end up suffering as little as $5 million damage on its bailout, and "perhaps nothing". (The Times' chart incorrectly labels a surge in money assets as retail, but this should be institutional.) Associated Press writes, "Money funds set aside cash for trouble but it's unlikely a fund will fail, observers say". AP's article says, "Peter Crane, president of Crane Data LLC, which tracks money market mutual funds, says he doesn't believe this will wind up hurting the average money market client." Finally, The Washington Times writes "Firms prop up money-market funds".

Bank of America Discloses $600 Million Columbia Money Funds Bailout. Bank of America will "spend $600 million supporting in-house money-market funds that are exposed to troubled financing entities called structured investment vehicles reports The Wall Street Journal. BoA's Columbia Funds are the 7th largest manager of money market mutual funds with over $150 billion in assets. Columbia joins a number of other fund complexes that have taken action purchasing or protecting structured investment vehicle-related commercial paper and medium-term notes, extendible ABCP and other esoteric mortgage-related securities whose value has come into question during the market's recent flight-from-complexity. See Bloomberg's "Bank of America, Legg Mason Prop Up Their Money Funds" for more.

SunTrust's STI Classic Funds Obtains No-Action Letter on Cheyne SIV. Fund news website ignites.com informs us that Trusco Capital Management, advisor to the STI Classic money funds, has obtained a "no-action" letter from the SEC to purchase a letter of credit from parent company SunTrust Bank to protect its minimal holdings (0.8%) of Cheyne medium-term notes. STI joins Legg Mason and SEI in a growing list of fund firms that have obtained protections requested by S&P and Moody's to maintain AAA fund ratings. S&P has previously said that about a "dozen" funds that it rates hold Cheyne debt, which had been rated A-1+ (the highest short-term rating) but is currently one of the few money market securities in the recent turmoil to actually default.

Legg Mason Purchased LOCs To Support SIVs In Its Citi Inst Money Funds. A late Monday Bloomberg.com article says that Legg Mason has taken action to support its money market funds. Legg's Western Asset unit becomes the fourth money fund advisor to publicly disclose support over troubled securities -- Evergreen, Credit Suisse, and SEI have come forward to date. (Visit tomorrow to read about No. 5, SunTrust Bank's STI Classic funds.) Legg Mason's Nov. 9 10-Q quarterly filing says it manages $167 billion in liquidity assets with approximately 6% invested in ABCP issued by SIVs. "The investments have not affected the $1 per share net asset value of the funds and Legg Mason does not expect that they will, although no guarantees are given.... In November 2007, in order to support the [fund's] AAA/Aaa credit ratings, Legg Mason elected to procure letters of credit (LOCs) ... of approximately $238 million," says the filing. Legg Mason "has provided approximately $178 million in cash collateral" and "estimates that, unless the LOCs are terminated during the quarter without being drawn, it will incur a $4.7 million charge to its net earnings in the December 2007 quarter ... representing the net impact of decreases in the fair value of the underlying ABCP through the date hereof."

SEI Provides "Capital Support Agreement" For Money Funds Over Cheyne. SEI Corp. will announce its quarterly earnings at 9am this morning. A topic of discussion is sure to be a footnote in its recent 10-Q filing, "On Nov. 8, 2007, the Company provided a guarantee in the form of Capital Support Agreements with two mutual funds, the SEI Daily Income Trust Prime Obligation Fund and the SEI Daily Income Trust Money Market Fund." SEI Investments is advisor and Bank of America's Columbia Management is the subadvisor. "On October 30, 2007, S&P advised the Company that it would place any mutual fund that had an AAA rating by S&P and which owned any securities issued by Cheyne Finance LLC (Cheyne) on credit watch with negative implications unless the fund was provided credit support.... Investments constituted approximately 14.0 percent and 7.1 percent, respectively, of the Prime Fund's and MM Fund's aggregate net asset values." Janney Montgomery Scott analyst Tom McCrohan tells us that the $129 million guarantee covers 50% of the Cheyne holdings, which could potenially represent a $7.4 million loss given Friday's valuations. Other money funds holding Cheyne (and other SIVs) may also "guarantee" troubled holding via internal or third party backing instead of buying out the entire holding.

"Protecting the $1 NAV: Advisors Bail Out Funds" Writes November MFI. The November issue of our flagship Money Fund Intelligence discusses recent troubles within money market funds and describes fund advisors' actions to protect investors. No money market mutual funds have broken the buck, or fallen below the $1.00 a share level, nor are any likely to due to the August asset-backed commercial paper crisis and the October structured investment vehicle panic reprise. But a handful of advisors running a small number of funds with downgraded or defaulted securities have purchased and removed these securities from their money funds, and others have sought additional guarantees or protections. MFI writes, "We'd guess that perhaps 5 to 10 funds have purchased up to $10 billion in assets, and that more could be coming due to this week's continued SIV stresses. To request a copy of the full article and issue, write us at info@cranedata.us.

Money Market Mutual Fund Assets Break The $3 Trillion Barrier! Says ICI. It's official. ICI's latest weekly statistics show money fund assets jumping by $54.69 billion in the latest week (ended Nov. 7) to a record $3.001 trillion. Institutional assets, powered by the Oct. 31 Fed rate cut, surged $53.82 billion to a record $1.904 trillion. Retail assets increased by $867 million to $1.097 trillion. Money fund assets have skyrocketed $619 billion, or 26%, YTD in 2007, and have grown by a massive $728 billion, or 32%, over 52 weeks. MMFs are poised to post their best year ever, even as concerns linger over fractional holdings of esoteric asset-backed holdings. Two thousand and seven should easily finish with money funds' biggest increase in dollar terms in their 35 year history. Asset growth is even on track to beat 1998's 27.7% percentage gain and perhaps even 1984's 30.2% gain. We have to go back to 1981, when money funds rose by 144% (by $54 billion to $234 billion), to find faster growth in percentage terms. Money fund assets surpassed the $500 billion level in 1991, the $1 trillion level in 1997, and the $2 trillion level in 2001. That year (2001) had been the prior recordholder for largest annual asset increase ($440 billion) up until this year.

"Asset Backed Commercial Paper Market Has Stabilized" Says Bernanke. Federal Reserve Chairman Ben Bernanke, speaking before the Joint Economic Committee of Congress today, said "The asset-backed commercial paper market has stabilized". He stated, "Concerns about mortgage-backed securities and structured credit products (even those unrelated to mortgages) also greatly reduced investor appetite for asset-backed commercial paper, although that market has improved somewhat recently." Commercial paper and ABCP outstandings dropped by $15.6 billion and $29.5 billion, respectively, in the latest week ended Nov. 7, reports the Federal Reserve. Bloomberg's article on the weekly numbers quotes Morgan Stanley's Kevin Flanagan, "I don't think we're in the crisis of confidence scenario anymore, but there are still some uncertainties."

Funds Open But Not Trading Veterans Day, Govts Closing Early Friday. While money funds will be open on Monday, Veteran's Day along with the New York Stock Exchange, no trading will take place and next day settlement-only will be avaiable due to the Federal Reserve Bank being closed. Many Prime funds are staying open all day Friday, continuing a recent trend of staying open longer ahead of Holidays. But almost all Government and Treasury funds will close early, at 2 or 3pm. American Beacon, Barclays, Dreyfus, Fidelity, JPMorgan, and Reserve, are among those companies whose funds will be open normal hours Friday and who have made a point of staying open all day prior to Holidays. Veteran's Day should offer a brief respite from continued concerns related to SIVs, or structured investment vehicles -- see today's "Link of the Day". While these problems may bring about a handful of additional fund bailouts, money funds continue to hold fast on their $1.00 NAVs and investors continue to be sheltered from any adverse impact. Money fund assets could break the $3 trillion level as early as tonight when ICI reports its weekly asset totals. We expect a big jump in assets, but the total will likely fall just shy of $3 trillion.

Sweep Rates Heading Lower Says New Brokerage Sweep Intelligence. Rates on brokerage sweep cash programs, already embarrasingly low, have headed even lower following the Federal Reserve's latest rate cuts. This month Crane Data launched a new monthly, Brokerage Sweep Intelligence, which tracks rates and features on FDIC-insured deposit programs, money market funds, and free credit "sweep" options at brokerages. The Crane Brokerage Sweep Index, which includes only default sweep options, declined from 2.36% to 2.27% in October, while the Crane Brokerage Cash Index, which includes money fund options as well, declined from 3.50% to 3.36%. Smith Barney reduced its rates to tie Merrill Lynch for the lowest rates on a $100K balance among all major brokerages, 1.05%, while the highest-yielding sweep rate, Raymond James, declined from 4.52% to 4.32%.

Assets Move Higher, Yields Move Lower in October Says MF Intelligence. The Crane Money Fund Average 7-Day Yield, our broadest measure of taxable funds (see the "Link of the Day" for news on the narrower Crane 100), fell to 4.53% from 4.61% in the month ended Oct. 31, 2007. Assets of taxable money funds tracked by Crane Data rose by over $117.5 billion to $2.375 trillion in October. While well below August's record asset surge, the overall asset increase was well above September's still heavy inflow level. Assets into Treasury funds were flat in October following a spectacular surge in August and modest increases in September; the vast majority of the increase went into "Prime" funds. The Crane Treasury Inst MF Index rose by $449 million to $161.6 billion (following a $62.8 billion jump in August) and the Crane Treasury Individual MF Index rose by $425 million to $124.8 billion (versus August's $17.5 billion jump). See the upcoming November issue of Money Fund Intelligence and Crane Index for more details. In the latest week, our Crane 100 MF Index has declined from 4.79% to 4.72%.

"Money-Market Funds Get a Boost From Bank Portals" Says U.S. Banker. The November issue of U.S. Banker magazine contains an article entitled "Money-Market Funds Get a Boost From Bank Portals". The monthly publication quotes Peter Crane and Crane Data statistics extensively on the growth of institutional money funds, the advantages of institutional money funds during falling rate scenarios and on the growing use of online money market trading portals by banks. "Of the 16 portals now in the online money-fund supermarket, at least six are affiliated with banks, including Bank of New York, Citigroup, Comerica, LaSalle, PNC and U.S. Bancorp. Crane expects two more banks will soon join them: UBS and Wachovia," quotes the U.S. Banker article. The piece also quotes CacheMatrix's George Hagerman, "The amount the bank gets paid usually ranges from five basis points to 12 basis points, with an average of about seven". Marianne Bamonte of LaSalle's MoneyMarketsExpress portal (whose team was already integrated with Bank of America's at AFP) adds that money fund portals were "a hole in the suite of corporate-client services".

Credit Suisse Purchased Money Fund Securities Says Wall Street Journal. In the second confirmed instance of a fund advisor purchasing securities to protect its money market funds during the recent asset-backed commercial paper crisis, Credit Suisse said on its earnings call, "We took steps to reposition certain of our U.S. money-market funds and purchase securities from these funds" to "address liquidity concerns caused by the U.S. market's extreme conditions," reports The Wall Street Journal. Credit Suisse purchased ABCP, FRNs (floating rate notes) and "notes issued by collateralized-debt obligation vehicles and structured investment vehicles" from its CS Inst Prime MMF. The company booked unrealized "value reductions" totalling approximately $125 million and said it saw over $20 billion in money fund outflows, including "offshore" funds and "cash" separate accounts. It was the only money fund manager with substantial asset declines during the 3rd quarter, down over 45%, according to Money Fund Intelligence's Distribution Survey. Northern and First American's money funds had marginal asset declines, falling 1.5% and 2.9%, respectively. But all other fund families showed gains among the 30 largest, averaging increases of 13.9% in the 3rd quarter.

Money Fund Assets Decline on Month-End; CP Supply Continues Recovery. Money market mutual funds declined by $23.4 billion to $2.947 trillion during the week ended Oct. 31, according to the ICI's most recent survey. It was the first decline since Sept. 19 and the largest since April 18. Outflows are likely temporary and due to month-end; we believe funds will resume their ascent and break through the $3 trillion barrier within weeks. Institutional investors withdrew $24.97 billion to $1.850 trillion while individual investors added $1.56 billion to $1.096 trillion. Commercial paper outstanding continued its recent recovery, rising $9.9 billion to $1.882 trillion in the latest week. But asset-backed CP declined further, falling $9.0 billion to $924.9 billion.

More SIV Concerns After Fed; Money Fund Assets To Break $3 Trillion. While another bout of concerns over SIVs, structured investment vehicles, washes through the post-Fed cut euphoria (see today's NYT's "M-LEC" update and FT's "Cheyne Finance deal in doubt"), money funds continue to weather and even benefit from the turmoil. Fed cuts raise the value of funds' existing money market holdings and institutions move to funds in order to delay the impact of lower rates. Money market mutual fund assets are about to break the $3 trillion barrier, perhaps as early as today. Assets stand at $2.97 trillion, a mere $30 billion below the $3 trillion mark, up a stunning $716 billion, or 31.8% over 52 weeks ago. ICI releases its weekly numbers around 4:30 today, and we expect a jump as Fed-related inflows outweigh month-end outflows. Yields on money funds, averaging 4.79%, will decline due to yesterday's Fed cut, but they continue to compare favorably with alternative direct market investments such as repo and Treasury bills and with longer-term and lower-quality fixed-income investment options.