Bloomberg News

U.S. Money Funds Increase French Bank Holdings to 12-Month High

October 12, 2012

The 10 largest U.S. money market funds increased their holdings of securities issued by French banks to the highest level for a year after the European Central Bank’s decision to buy government bonds revived confidence in the region.

Investments in French banks climbed by $9.6 billion in September to $22.6 billion, the biggest rise of any country, according to a survey of fund disclosures by Bloomberg Brief: Risk. Societe Generale SA (GLE), the country’s second-largest lender, attracted almost $5 billion from the funds, bringing their total holdings in the Paris-based bank to $8.2 billion. That compares with a low of $750 million in December. Still, none of the funds surveyed invested in Spanish or Italian banks, keeping their holdings at zero.

“Our portfolio managers have become more comfortable with the near-term market outlook in Europe, based on additional clarity that came as a result of recent announcements from the ECB,” said Stephen Austin, a spokesman for Fidelity Investments. Three of the firm’s funds boosted their holdings in French banks by $5 billion in September. “We feel confident in increasing our funds’ short term exposure to euro zone banks.”

The pools increased their holdings in Natixis SA to $5.5 billion from $1.5 billion, the most since August 2011. BNP Paribas SA (BNP), the country’s largest lender, and Credit Agricole SA (ACA), the third-biggest, had smaller increases of $111 million and $712 million respectively in the month.

Lengthening Maturities

Money funds also increased the maturity of their holdings in French banks, according to an Oct. 11. report to clients by JPMorgan Chase & Co. (JPM:US) analyst Alex Roever.

Three of the French banks surveyed may have attracted money fund investment by paying more for short-term borrowing as the three-month dollar London interbank offered rate declined in the month. The three largest French banks as well as Royal Bank of Scotland Plc regularly reported higher borrowing costs than the average Libor rate in the period, according to data compiled by Bloomberg.

Libor is calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the British Bankers’ Association, a banking industry lobby group, that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

RBS’s money-market funding increased by $5.1 billion to $12.1 billion in September, while there was a total reduction for U.K. banks of $2.15 billion, the survey showed. RBS had a liquidity portfolio of 156 billion pounds ($251 billion) to cover funding shortfalls, according to an Aug. 3 presentation.

Reducing Needs

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 also hold cash-like instruments in a liquidity pool to meet redemptions.

Societe Generale has reduced its use of short-term wholesale funding by 30 percent since the middle of last year, according to a second-quarter presentation given alongside results on Aug. 1. The bank had 114 billion euros ($148 billion) of liquid assets available to make up for funding shortfalls, according to the presentation. That amount covers 99 percent of the bank’s funding needs. BPCE, the parent company of Natixis (KN), has reduced its wholesale funding requirements by 22.9 billion euros since the end of June last year.

Funds Surveyed

Nathalie Boschat, spokeswoman at Societe Generale and Natixis spokeswoman Andrea Pucnik declined to comment on the figures. Pascal Henisse, a spokesman at BNP Paribas, declined to comment. Officials at RBS weren't immediately available to comment.

The funds surveyed were Fidelity Cash Reserves (FDRXX:US), JPMorgan Prime Money Market Fund (CJPXX:US), Vanguard Prime Money Market Fund (VMMXX:US), Fidelity Institutional Money Market Portfolio, BlackRock TempFund, Federated Prime Obligations Fund (POIXX:US), Schwab Cash Reserves (SWSXX:US), Western Asset Institutional Liquid Reserves and Dreyfus Cash Management Fund. Together the funds manage $687 billion in assets, including repurchase agreements backed by government debt.

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: Nicholas Dunbar at ndunbar1@bloomberg.net


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