Bloomberg News

French Banks’ U.S. Money-Market Funding at 18-Month High

March 15, 2013

The 10 largest U.S. prime money market funds’ holdings of French banks’ short-term securities increased to $52.7 billion at the end of February, breaching levels last seen in August 2011.

Holdings of BNP Paribas SA (BNP), Societe Generale SA (GLE), Credit Agricole SA (ACA) and Natixis (KN) SA securities increased by $8.7 billion from $44 billion at the end of January, according to a survey of 42 banks by Bloomberg Brief: Risk Newsletter. The French banks have boosted their use of the short-term funding by 168 percent from $19.7 billion a year ago.

Having removed $84 billion from French banks from late 2010 to December 2011 amid concern the European debt crisis was worsening, the money funds remain cautious on French bank paper, restricting much of their activity to the shortest-term funding. The lenders have been building up reserves against the risk of another pullback in short-term funding should the debt crisis worsen again.

“We continue to be very comfortable with our limited exposure to banks in the core euro-zone countries,” Stephen Austin, a spokesman for Boston-based Fidelity Investments, said in an e-mailed statement. “Increased holdings in French banks were concentrated in very short maturities, and the average maturity of French bank holdings in cash reserves at month-end was 13 days.”

BNP Paribas spokesman Pascal Henisse declined to comment, as did Societe Generale (GLE) spokeswoman Astrid Brunini. The lenders are the nation’s biggest and second-biggest respectively. Credit Agricole, France’s third-largest bank by market value, didn’t immediately return calls seeking comment.

Repurchase Agreements

French banks’ use of money-fund liquidity is lower today than in the second half of 2010, when the 10 biggest funds reported holdings of $89.5 billion. Money funds now account for less than 2 percent of the major French banks’ total funding, Fitch Ratings said in a March 14 report.

“The banks are starting to increase their use of U.S. money-market funding, but this will remain permanently lower because of the banks’ adjusted business mix,” Fitch said.

The proportion of money-fund lending to French banks collateralized with repurchase agreements declined to 23.7 percent in February from 33.6 percent in January, according to the survey, indicating greater demand for unsecured debt.

Wells Fargo & Co. (WFC)’s Heritage Money Market Fund bucked that trend, as its increase in French bank holdings consisted of repurchase agreements collateralized with U.S. Treasuries, John Roehm, a spokesman for the San Francisco-based bank, said by e- mail. Holdings of the lenders’ unsecured obligations fell to 6.8 percent from 7.4 percent, he said.

Higher Returns

The French increase buoyed money-fund holdings of bank paper for the entire euro area, which increased $12.9 billion to $89.9 billion in February. Analysts say relatively high rates at the region’s banks are luring money funds.

U.S. dollar three-month Libor (US0003M) yielded 28 basis points on March 11, while six-month rates traded at 44.7 basis points. JPMorgan analysts forecast the two rates will fall to 24 basis points and 38 basis points respectively in the second quarter, historical lows that may encourage funds to seek higher yields than Libor, a measure of what banks charge to lend to each other. A basis point is one-hundredth of a percentage point.

“Money-market funds will continue to add banks that provide relative value, including Eurozone and emerging-market banks,” Alex Roever, an analyst at JPMorgan, said in a March 11 report.

French bank holdings are the third-largest national concentration in the survey, behind Japanese and Canadian banks.

Liquidity Buffers

Societe Generale had a liquidity buffer of 133 billion euros at the end of the fourth quarter, according to its annual results presentation on Feb. 13. Brunini, the bank spokeswoman, declined to comment on the funding change.

BNP had 221 billion euros available to cover its 185 billion euros in short-term funding, including long-term refinancing funds from the European Central Bank.

Credit Agricole (ACA) had a liquidity buffer of 177 billion euros available to cover 84 billion euros of short-term funding at the end of December, according to its Feb. 20 fourth-quarter results presentation. The bank has reduced its funding needs by 68 billion euros since June 2011, it said. Natixis (KN)’s parent company, BPCE Group, had 144 billion euros available to cover its short-term funding at the end of 2012, according to its fourth-quarter results.

Deutsche Bank, RBS

The largest nominal increase for individual banks in February was at Deutsche Bank AG (DBK), which increased the amount of paper issued to the funds by $4.4 billion to $21 billion, the third-highest total of any bank in the survey.

Sumitomo Mitsui Financial Group Inc. (8316) and Bank of Tokyo- Mitsubishi UFJ Ltd. were the two largest users of the 10 funds, at $29.5 billion and $28.4 billion in debt outstanding respectively at the end of February, the survey showed.

Royal Bank of Scotland Group Plc had the largest percentage decline among the banks after it joined other U.K. lenders in shrinking its balance sheet and exiting some businesses to reduce funding needs. The bank’s paper held with the funds shrank 41 percent in February to $3.5 billion, down from $6 billion at the end of January.

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.

The funds surveyed were Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Prime Money Market Portfolio, Fidelity Money Market Portfolio, BlackRock TempFund, Federated Prime Obligations Fund, Western Asset Institutional Liquid Reserves, Schwab Cash Reserves and Wells Fargo Advantage Heritage Money Market Fund. Together, the funds managed $715.7 billion in assets as of the end of February, 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; Edward Evans at eevans3@bloomberg.net.


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