Federated shares drop on money fund rules outlook
Shares of Federated Investors Inc. dropped Wednesday on worries about stricter government oversight of one of its key products, money-market mutual funds.
THE SPARK: The Financial Stability Oversight Council, a panel of regulators led by Treasury Secretary Timothy Geithner, on Tuesday urged the Securities and Exchange Commission to adopt tougher rules on money funds. The proposed rules included a capital reserves requirement and limits on how quickly investors can withdraw their money.
SEC Chairman Mary Schapiro pushed for similar changes last summer but was opposed by a majority of SEC voting members.
THE BIG PICTURE: The mutual fund industry has lobbied against Schapiro's proposed changes, saying they would make money funds so unattractive that investors could pull out of them altogether. The funds came under scrutiny after a big money-market fund collapsed during the 2008 financial crisis.
Federated would be especially vulnerable if stricter rules were adopted because it relies on money funds for a greater proportion of its overall revenue than its rivals.
Other than concerns about regulation, Federated and many other asset managers have also been pressured in recent years by low interest rates. Low rates have made money fund returns so small that firms often waive their fees so that customers' net returns aren't negative.
SHARE ACTION: Shares of Pittsburgh-based Federated Investors fell 86 cents, or 4.4 percent, to $18.48 in afternoon trading. The stock had gained about 28 percent this year, trading in a 52-week range of $14.36 to $23.89.