Bloomberg News

U.S. Money Funds Cut French Bank Debt by 68% in November

December 12, 2011

(Updates with Moody’s downgrade in fifth paragraph.)

Dec. 9 (Bloomberg) -- The eight largest prime U.S. money- market mutual funds cut holdings in French banks by 68 percent in November, shifting investments to Swiss, Swedish, Canadian and Japanese banks.

French bank holdings declined by $11.7 billion to $5.56 billion, according to an analysis of fund disclosures by the Bloomberg Risk newsletter. The eight funds have reduced French bank debt by $76.8 billion in the past 12 months.

The decline in short-term lending has forced French banks to increase their borrowing from the European Central Bank more than four-fold over the last four months, and adds to woes at lenders seeking to meet tighter capital requirements. European Union banks must raise 114.7 billion euros ($152.8 billion) as part of measures to respond to the region’s sovereign-debt crisis, the European Banking Authority said yesterday.

“The ECB’s open market operations have been a vital source of funding for banks in the euro zone as the sovereign-debt crisis has intensified,” Jonathan Glionna, an analyst at Barclays Capital Group in London, said in a report published on Dec. 7.

Moody’s Investors Service today cut the long-term debt ratings for French banks BNP Paribas SA, Societe Generale SA and Credit Agricole SA, citing the funding constraints and deteriorating economic conditions. The banks’ short-term ratings, which apply to money-fund holdings, were affirmed at Prime-1.

Turning to ECB

Standard & Poor’s on Dec. 7 placed ratings of European banks, including Paris-based BNP Paribas, Societe Generale and Groupe BPCE, as well as Montrouge-based Credit Agricole, on watch for a possible downgrade amid a similar review of 15 countries in the region.

Societe Generale, France’s second-biggest bank, in November agreed to sell $600 million of U.S. commercial property loans to Macquarie Group Ltd., people familiar with the matter said last month.

French banks borrowing through the main and long-term refinancing operations of the ECB reached 100.6 billion euros in October, compared with 22.3 billion euros at the end of June, according to figures from the Banque de France, France’s central bank. Banks across Europe raised 656 billion euros through ECB lending through open market operations on Dec. 6, approaching the highest level in over a year, according to data from Barclays Capital.

Switzerland’s Gain

Holdings by U.S. money funds in BNP Paribas, France’s largest bank by assets, fell $8.85 billion in November, or 67 percent. Holdings of debt issued by Societe Generale declined $2.37 billion, or 89 percent, and paper held by Credit Agricole, the third-largest French bank, fell by $517 million, or 39 percent.

Debt issued by Natixis, France’s fourth-largest bank, and parent company BPCE SA, in Paris, was not among holdings by the funds surveyed.

In total, the top four French banks have seen their money- market funding decline by 93 percent compared with a year ago.

That $76.8 billion decline in funding has benefited banks in Switzerland, Sweden, Canada and Japan, the data show. Holdings in the largest banks in those countries have increased by $55 billion over the same period.

Swedish banks Svenska Handelsbanken AB, Nordea Bank AB, Skandinaviska Enskilda Banken AB and Swedbank AB, all based in Stockholm, attracted a 27 percent increase in investment in November, the largest percentage rise among the countries seen as safe havens. Swiss banks UBS AG and Credit Suisse Group AG had the largest increase compared with a year ago, rising by 160 percent, or $17.2 billion.

Sovereign Ratings

The moves show a bias in favor of financial institutions outside the euro zone, as the continuing sovereign crisis threatens country ratings. S&P this week put 15 of the 17 European Union member nations on negative watch following concern over a resolution to the crisis. The rating company said the move could affect bank ratings also.

The funds surveyed -- the largest U.S. money-market funds eligible to purchase corporate debt -- were Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Money Market Portfolio, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund.

The figures include repurchase agreements that are backed by government collateral.

--With assistance from Christopher Condon in Boston. Editors: Steven Crabill, Christian Baumgaertel, Larry Edelman

To contact the reporters on this story: Radi Khasawneh in London at rkhasawneh1@bloomberg.net; Alberto Fuertes in London at afuertes@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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