Bloomberg News

U.S. Money Funds Cut U.K. Holdings in Shift From Europe

July 13, 2012

The 10 biggest prime U.S. money market funds cut holdings of securities issued by U.K. banks by $13.7 billion in June, the largest amount of any country, as the funds continued a shift away from Europe.

Holdings of European banks, including those outside the euro currency area, declined by $29.5 billion, according to a monthly survey by the Bloomberg Risk Newsletter. The total invested in European banks, at $148.8 billion as of June 30, is the lowest since at least September, when Bloomberg started collecting data for the 10 funds.

U.S. money funds have reduced funding for European banks amid concerns that credit quality will worsen. Longer-term credit ratings for the four largest U.K. banks, which don’t directly affect the ability of money funds to invest in their short-term securities, were downgraded by Moody’s Investors Service in June. The European Central Bank, which sets interest rates for the countries that share the euro, lowered deposit rates to zero on July 5, causing some U.S. managers to temporarily shut European money funds to new investors.

Fund holdings issued by London-based Barclays Plc (BARC) fell 33 percent from the end of May to $16.8 billion, according to the survey. That represented the largest dollar decline in the month for an individual bank.

Barclays, Lloyds

Barclays may have needed less money market funding after increasing its pool of liquid assets, including central bank deposits, to 173 billion pounds ($267 billion) at the end of the first quarter, from 152 billion pounds at the end of last year, according to a first-quarter results filing.

Lloyds Banking Group Plc (LLOY) holdings declined 68 percent to $1.7 billion, while those of Royal Bank of Scotland Plc dropped 20 percent to $11.3 billion. London-based Lloyds had 106 billion pounds of primary liquid assets available to meet wholesale funding needs at the end of March, according to a results presentation, against 91 billion of borrowing maturing in less than one year. RBS had a liquidity buffer of 153 billion pounds against 80 billion pounds of short-term funding, according to a first-quarter presentation.

Simon Eaton, a spokesman for Barclays, Rebecca Nelson at RBS and Sarah Swailes at Lloyds declined to comment.

Rabobank, ING

Holdings in securities issued by Netherlands-based banks fell by $11.7 billion in June, the second-biggest drop among all countries in dollar terms.

Rabobank International and ING Groep NV (INGA), both based in Amsterdam, accounted for the decline in money-market investments in the Netherlands. ING’s borrowing from the funds fell 42 percent to $7.1 billion, while Rabobank’s was cut 46 percent to $7.7 billion.

ING had 224 billion euros in available collateral at the end of the first quarter, compared with 192 billion euros in December 2011, according to its first-quarter results. Rabobank had about 161 billion euros of short-term assets available to cover short-term funding at the end of last year, according to its annual report.

“ING uses a multitude of sources for both short-term and long-term funding,” Frans Middendorff, a spokesman at ING, said in an e-mailed statement. “Funding size from specific sources, like U.S. money market funds, varies depending on what best suits our needs from period to period.”

Hendrik Jan Eijpe, spokesman at Rabobank, declined to comment.

Short-Term Funding

In addition to selling commercial paper, certificates of deposit and repurchase agreements to money funds, banks can obtain short-term funding from central banks, interbank repurchase agreements, or by increasing deposit rates to attract more money from individual customers. Banks can also hold cash- like instruments in a liquidity pool to meet redemptions.

Japanese banks attracted money funds for the third month in a row. Holdings of Japanese banks increased 12 percent in June to $69.9 billion, the most of 12 countries included in the survey.

The survey included Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Prime Money Market Portfolio, Fidelity Institutional Money Market Portfolio, BlackRock TempFund, Federated Prime Obligations Fund, Schwab Cash Reserves, Western Asset Institutional Liquid Reserves and Dreyfus Cash Management Fund.

Total assets under management at the 10 funds declined to $649.8 billion on June 30, from $674.7 billion. All prime U.S. money funds held $1.4 trillion as of July 10, according to research firm iMoneyNet in Westborough, Massachusetts.

Prime funds are those not restricted to securities backed by the U.S. government.

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 editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Nicholas Dunbar at ndunbar1@bloomberg.net


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