Download US Money Fund Exposure to European Banks

U.S. Money Fund Exposure to European Banks:
Recent Developments
Macro Credit Research
March 30, 2011
Analysts
Summary
Macro Credit Research
Robert Grossman
+1 212 908-0535
[email protected]
Market sentiment on European sovereigns that have experienced heightened investor concern
continues to affect the perceived credit risk of financial institutions in those countries. An
important funding channel for European financial institutions and, therefore, a potential channel
for eurozone sovereign risk, is U.S. prime money market funds (MMFs), which continue to have
sizable exposures to European financial institutions (see text box on page 2). This report updates
Fitch Ratings’ prior research on this topic (see December 2010 study, “U.S. Money Market Funds:
Recent Trends in Exposure to European Banks”) as of end-February 2011 and focuses on MMF
exposures to banks’ certificates of deposit (CDs), commercial paper (CP), asset-backed CP (ABCP),
and, new for this report, repurchase agreements (repos).
Kevin D’Albert
+1 212 908-0823
kevin.d’[email protected]
Martin Hansen
+1 212 908-9190
[email protected]
Fund and Asset Manager Group
Viktoria Baklanova
+1 212 908-9162
[email protected]
MMF Exposure to European Bank CDs, CP, and Repurchase Agreements —
By Select Country
(As a % of Total MMF Assets Under Management)
Related Research
16.0
14.0
••U.S. Money Market Funds: Recent Trends in
Exposure to European Banks, Dec. 10, 2010
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Research Highlights
• Sample based on 10 largest U.S.
prime MMFs, currently representing
$736 billion (45%) of $1.63 trillion
in total U.S. prime MMF assets.
• Recent bank exposure trends
(% of total MMF assets):
oo Spain: 0.2% (declining)
oo Italy: 1.3% (stable)
oo France: 12.4% (stable)
• Top MMF repo counterparties
(% total MMF assets):
oo Deutsche Bank: 2.8%
oo Barclays: 1.9%
oo J.P. Morgan Chase: 1.4%
• Aggregate CD, CP, and repo exposure
to Deutsche Bank: 4.9% of total
MMF assets.
(%)
Europe CD, CP, and Repo (Right Axis)
CP
Repo
Europe CD and CP (Right Axis)
(%)
60
50
40
30
20
10
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
France
U.K.
Italy
Spain
••U.S. Money Market Funds Quarterly:
Fourth-Quarter 2010, Jan. 11, 2011
CD
2H06
1H07
2H07
1H08
2H08
1H09
2H09
1H10
2H10
0
2/11
Fitch Ratings, MMF public Web sites, and SEC filings.
>>
MMF exposure to Spanish banks has declined significantly from peaks of roughly 3.0% of
total MMF assets in 2008 and 2009 to just less than 0.2% as of February 2011 (see chart
above). This exposure was 1.7% as recently as 1H 2010.
>>
MMF exposure to Italian banks, which until recently has followed roughly similar patterns
as Spanish banks, has not experienced the same sharp decline. For example, Italian banks
represented approximately 1.3% of MMF total exposures in both 2H 2010 and as of
February 2011.
>>
MMFs continue to have immaterial exposure to Portuguese and Irish banks after peaking in
1H 2009 (0.5% of total MMF assets) and 1H 2008 (1.5% of total MMF assets), respectively.
>>
MMF exposure across all European banks (including CD, CP, ABCP, and repos) remains
significant at 44.3% of total MMF assets as of February 2011. This is down slightly from
www.fitchratings.com
U.S. Money Fund Exposure to European Banks: Recent Developments
Largest Global CD and CP Exposures
Second-Half 2007
As of February 2011
CD & CP/
Counterparty
Citibank
% of Total MMF Assets
CD &
CD
CP
CP
0.3
3.3
3.6
Financial
Institution’s
Total Assets (%)
1.1
CD & CP/
% of Total MMF Assets
Counterparty
Rabobank
CD
2.8
CP
0.6
CD &
CP
3.4
Financial
Institution’s
Total Assets (%)
2.7
Barclays
2.5
0.9
3.4
0.9
BNP Paribas
2.9
0.3
3.2
0.9
JP Morgan Chase
0.4
2.2
2.7
1.2
Societe Generale
1.0
1.4
2.4
1.2
HBOS
0.8
1.1
1.9
1.0
Credit Agricole
2.2
0.1
2.3
0.7
Societe Generale
1.3
0.7
1.9
0.8
Westpac
0.4
1.7
2.2
2.6
Bank of America
0.1
1.8
1.9
0.7
National Australia Bank
2.1
0.0
2.1
2.2
ABN AMRO Bank
0.3
1.5
1.9
0.8
Deutsche Bank
1.4
0.6
2.1
0.6
UBS
1.2
0.5
1.7
0.6
Bank of Tokyo-Mitsubishi
2.0
0.0
2.0
0.8
Royal Bank of Scotland
1.0
0.5
1.5
0.5
Bank of Nova Scotia
1.7
0.2
2.0
2.8
Rabobank
0.5
1.0
1.5
1.2
ING
1.5
0.5
2.0
1.1
Source: Fitch Ratings, MMF public Web sites, and SEC filings.
2H 2010 of 45.9% (or approximately 40% if excluding repos).
The largest European exposures are to banks in France (12.4%
of total MMF assets) and the U.K. (8.6%).
>>
>>
The 10 largest global bank exposures (CD and CP) have
changed significantly relative to 2H 2007 (see table above),
with only two of the 10 largest exposures (Societe Generale
and Rabobank) remaining in the top 10 as of February 2011.
This change in composition partly reflects a shift in asset type,
since several of the largest exposures as of 2H 2007 were to
institutions that were active sponsors of ABCP programs, an
asset class that has declined markedly over this period.
There has also been a notable change in the largest global
MMF repo counterparties (see table below) from 2H 2007
to February 2011. In particular, several of the top 15 repo
counterparties as of 2H 2007 experienced significant financial
Largest Global Repo Counterparty Exposures
Second-Half 2007
Counterparty
As of February 2011
% of Total
MMF Assets
Counterparty
% of Total
MMF Assets
Deutsche Bank
2.6
Deutsche Bank
2.8
Goldman Sachs
2.6
Barclays
1.9
Citibank
1.0
JP Morgan Chase
1.4
UBS
1.0
Royal Bank of Scotland
1.1
Merrill Lynch
1.0
Credit Suisse
1.0
Bank of America
0.9
Merrill Lynch
1.0
Morgan Stanley
0.7
ING
0.5
Credit Suisse
0.7
Citibank
0.4
Barclays
0.7
BNP Paribas
0.4
Lehman Brothers
0.6
Goldman Sachs
0.4
Bear Stearns
0.5
Wells Fargo
0.3
Wachovia
0.4
Societe Generale
0.3
JP Morgan Chase
0.4
Bank of America
0.3
BNP Paribas
0.4
Morgan Stanley
0.2
Royal Bank of Scotland
0.3
HSBC
Total
Europe Only (Bolded)
12.3
5.6
8.3
Source: Fitch Ratings, MMF public Web sites, and SEC filings.
2
0.2
13.6
difficulties, with some no longer existing as independent
entities (e.g., Bear Stearns, Lehman Brothers, and Wachovia).
>>
Aggregate CD, CP, and repo exposure to Deutsche Bank
composed almost 5% of total MMF assets as of February 2011.
Drivers of U.S. MMF Exposure to European Banks
There are several macro factors that help to explain the
significant exposure of U.S. MMFs to European bank issuers.
• Need for Dollar Funding: The dollar-denominated assets
of European banks have grown rapidly over the past
decade. Dollar-based European bank assets rose from
approximately $2 trillion in 1999 to more than $8 trillion in
2008 according to the Bank for International Settlements
(BIS) (see March 2009 BIS Quarterly Review article,
“U.S. Dollar Money Market funds and Non-U.S. Banks”).
U.S. money funds provide a natural source for short-term
dollar financing (e.g., prime money fund total assets are
approximately $1.63 trillion as of March 2011).
• Financial Industry Consolidation: Industry consolidation
and the failure of several financial institutions during
the financial crisis have reduced the global universe
of potential MMF investment targets, particularly in
the U.S. For example, from the 1H 2007 through
the beginning of 2011, the total number of financial
institutions within this study’s sample of MMFs dropped
by approximately 20% (e.g., Bear Stearns, Countrywide,
Lehman Brothers, Wachovia, and Washington Mutual).
This consolidation resulted in relatively more European
institutions represented in the MMF investment mix.
• Shrinkage of the ABCP Market: Since the beginning of
2007, ABCP outstanding has dropped from $1.2 trillion
to $390 billion currently, in part reflecting diminished
MMF appetite for this asset class. European bank CD
exposure has helped to fill the resulting void.
March 30, 2011
Fitch Ratings
Background on Fitch Study
• This research study is intended to provide market participants • The period of observation covers nine distinct, semiannual
with information on MMF exposures to European banks and
periods and month-end February 2011. Notably, financial
does not comment specifically on Fitch-rated MMFs. As such,
reporting dates often vary across MMFs. Fitch therefore has
the report does not at present have any rating implications.
applied a degree of judgment in categorizing individual MMF
filings into the appropriate semiannual bucket.
• The MMFs in Fitch’s sample for the most recent observation
period (i.e., February 2011) represent roughly $736 billon, • Most of the historical data included in this study is comparable
to the “U.S. Money Market Funds: Recent Trends in Exposure to
or 45%, of the Investment Company Institute’s estimate of
European Banks” report published by Fitch in December 2010.
approximately $1.63 trillion in total U.S. prime MMF assets
under management.
However, 2H 2010 data in the December 2010 report was
compiled as of October 2010 and reflects an interim observation
• The sample set is based on public filings from the 10 largest
for that period. The 2H 2010 data provided in this report has been
prime institutional and retail MMFs (as measured by assets
updated and revised to reflect MMF holdings as of November/
under management) as of each observation period. Thus, the
December 2010, resulting in slight differences with the
MMFs sampled differ slightly from period to period in some
2H 2010 figures published in the Fitch report.
cases. This analysis is based on aggregated data for the 10
MMFs sampled and, therefore, does not capture potential • In order to maintain data integrity, Fitch periodically reviews
differences in exposure profiles across individual funds.
raw exposure-level holdings data and, if warranted, may
reclassify specific exposures (e.g., by asset type, industry
• MMF exposure to banks encompasses the following instrument
sector, counterparty, or country). Reclassification and/or
types: CDs, CP, ABCP, and repos. Corporate notes, including
revisions to the data set can result in (generally minor) changes
puttable notes, are beyond the scope of this analysis. Exposure
to the historical time series of MMF exposures.
data for foreign subsidiaries is consolidated within the banking
group’s home jurisdiction.
March 30, 2011
3
U.S. Money Fund Exposure to European Banks: Recent Developments
Appendix
MMF Exposure to Bank CDs, CP, and Repos — By Country
(As a % of Total MMF Assets Under Management)
AU
BE
DK
FR
DE
IE
IT
LU
NL
NO
PT
ES
SE
CH
U.K.
Europe
(All)
2H 2006
0.2
1.3
0.5
7.7
8.1
0.4
1.2
0.0
3.6
0.1
0.0
0.4
1.4
3.5
10.0
38.4
CD
0.0
0.5
0.0
6.2
3.4
0.3
0.9
0.0
1.0
0.0
0.0
0.1
0.9
1.7
5.5
20.4
14.1
CP
0.2
0.8
0.5
1.4
3.4
0.2
0.3
0.0
2.6
0.1
0.0
0.3
0.5
0.5
3.3
Repo
0.0
0.0
0.0
0.1
1.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.3
1.2
3.8
1H 2007
0.2
1.7
0.5
7.4
7.4
0.3
0.7
0.0
3.7
0.1
0.0
0.3
1.3
4.5
9.9
38.0
CD
0.1
1.0
0.0
6.1
3.6
0.2
0.5
0.0
1.7
0.0
0.0
0.2
0.7
2.8
5.1
22.1
CP
0.1
0.7
0.5
1.1
2.5
0.1
0.2
0.0
2.0
0.1
0.0
0.1
0.6
1.1
3.1
12.2
Repo
0.0
0.0
0.0
0.1
1.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.6
1.8
3.7
2H 2007
0.1
2.4
0.4
6.5
6.7
0.6
0.7
0.0
4.2
0.2
0.1
1.3
2.0
4.8
11.4
41.3
CD
0.0
1.2
0.0
4.8
2.1
0.3
0.4
0.0
1.3
0.0
0.0
1.0
1.3
2.5
6.2
21.2
CP
0.1
1.2
0.4
1.3
1.9
0.4
0.3
0.0
2.9
0.2
0.1
0.3
0.7
0.6
4.2
14.3
Repo
0.0
0.0
0.0
0.4
2.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.7
1.0
5.8
1H 2008
0.1
2.1
0.5
8.3
6.1
1.5
2.3
0.0
3.2
0.2
0.0
2.2
1.7
3.0
9.3
40.4
CD
0.0
1.1
0.0
6.9
2.1
0.8
1.9
0.0
1.5
0.0
0.0
2.1
0.8
1.4
5.8
24.4
CP
0.1
1.0
0.5
1.2
1.1
0.7
0.4
0.0
1.6
0.1
0.0
0.1
0.9
0.4
2.6
10.8
Repo
0.0
0.0
0.0
0.2
2.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.2
0.9
5.2
2H 2008
0.2
0.3
0.8
10.3
2.4
0.5
2.7
0.0
4.7
0.5
0.0
3.2
1.7
2.6
9.5
39.3
CD
0.0
0.1
0.0
7.7
0.9
0.4
2.3
0.0
2.5
0.1
0.0
2.6
1.2
1.2
5.5
24.5
CP
0.2
0.2
0.8
2.1
0.9
0.1
0.4
0.0
2.2
0.4
0.0
0.6
0.5
0.6
2.9
11.7
Repo
0.0
0.0
0.0
0.6
0.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.8
1.1
3.0
1H 2009
0.1
0.6
1.3
14.3
4.3
0.0
3.0
0.0
5.0
0.5
0.5
3.0
1.9
2.1
10.0
46.7
CD
0.0
0.6
0.5
11.4
2.2
0.0
2.4
0.0
3.7
0.3
0.5
2.1
1.3
1.2
6.2
32.4
CP
0.1
0.0
0.9
2.1
1.0
0.0
0.6
0.0
1.3
0.2
0.0
0.9
0.6
0.5
2.1
10.4
Repo
0.0
0.0
0.0
0.8
1.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
1.7
4.0
2H 2009
0.1
1.3
1.2
14.7
5.6
0.4
3.2
0.0
5.7
0.9
0.3
2.9
2.5
1.4
10.7
50.8
CD
0.0
1.0
0.6
11.7
2.7
0.4
2.4
0.0
4.8
0.7
0.2
2.0
1.9
0.6
6.8
35.8
CP
0.1
0.3
0.6
2.7
1.7
0.0
0.8
0.0
0.8
0.2
0.1
0.9
0.6
0.2
1.3
10.2
Repo
0.0
0.0
0.0
0.3
1.2
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.5
2.6
4.8
1H 2010
0.0
1.0
1.2
11.1
6.7
0.0
2.0
0.0
5.4
0.9
0.0
1.7
2.3
1.6
9.5
43.4
CD
0.0
0.7
0.4
9.1
2.3
0.0
1.0
0.0
4.1
0.5
0.0
1.2
1.6
0.4
5.8
27.2
CP
0.0
0.3
0.8
1.7
2.3
0.0
0.9
0.0
1.0
0.4
0.0
0.5
0.7
0.5
1.1
10.3
Repo
0.0
0.0
0.0
0.3
2.1
0.0
0.0
0.0
0.2
0.0
0.0
0.0
0.0
0.8
2.5
5.9
2H 2010
0.1
0.9
1.1
13.2
6.9
0.0
1.3
0.0
6.0
0.9
0.0
0.5
2.8
2.8
9.4
45.9
CD
0.0
0.5
0.6
10.4
2.4
0.0
0.4
0.0
4.4
0.5
0.0
0.3
2.2
1.4
4.5
27.5
CP
0.1
0.3
0.5
2.2
2.1
0.0
0.9
0.0
1.1
0.4
0.0
0.3
0.6
0.3
2.0
10.7
Repo
0.0
0.0
0.0
0.6
2.5
0.0
0.0
0.0
0.5
0.0
0.0
0.0
0.0
1.1
2.9
7.7
Feb. 2011
0.2
0.2
1.0
12.4
7.6
0.0
1.3
0.0
6.1
0.0
0.0
0.2
2.8
4.0
8.6
44.3
CD
0.1
0.0
0.3
8.6
2.8
0.0
0.1
0.0
4.3
0.0
0.0
0.1
2.1
2.0
3.7
24.2
CP
0.0
0.2
0.7
2.9
2.0
0.0
1.2
0.0
1.3
0.0
0.0
0.1
0.7
0.8
1.7
11.6
Repo
0.0
0.0
0.0
0.9
2.8
0.0
0.0
0.0
0.5
0.0
0.0
0.0
0.0
1.2
3.2
8.5
AU – Austria. BE – Belgium. DK – Denmark. FR – France. DE – Germany. IE – Ireland. IT – Italy. LU – Luxembourg. NL – Netherlands. NO – Norway. PT – Portugal.
ES – Spain. SE – Sweden. CH – Switzerland. U.K. – United Kingdom. Source: Fitch Ratings, MMF public Web sites, and SEC filings.
4
March 30, 2011
Fitch Ratings
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March 30, 2011
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