Fallout continued from The Reserve Primary Funds' "breaking of the buck" yesterday, as severe dislocations and a flight-to-Treasuries engulfed the money market. However, no additional bailouts surfaced, and reporters frantically searching for the next possible money fund victim were forced to write about Reserve again. Below, we recap the barrage of articles out today, and cite some recent ratings changes and fund communiques.
Additional coverage of the "breaking the buck" story today includes: The Wall Street Journal's "Money-Market, Similar Funds Appear Solid Amid Carnage,", which asks, "Are other money funds in trouble? It's not likely, according to industry executives and analysts. Investors with money funds at large asset-management companies like Fidelity Investments and BlackRock Inc. are probably safe because the companies have the resources and the deep pockets to buy out any bad securities. Reserve Primary Fund 'appears to be an outlier,' says Peter Crane, who tracks money funds. 'People got worried that Reserve wouldn't be able to bail the fund out, so they started running.' The Reserve Fund, which had assets of around $62 billion on Friday, had dropped to about $24 billion on Tuesday." Also from WSJ, "Breaking Buck".
The Washington Post's "How Safe Is Your Money Fund?", which says, "The strains on the Reserve Primary Money Market Fund have prompted investors to ask whether their own money-market funds could be at risk. Money-market funds are not insured or guaranteed by the Federal Deposit Insurance Corp. or any government agency. But fund companies have historically covered losses. Money-market observers expect that the losses Reserve's investors took will be an isolated event."
The Washington Post also writes, "Beyond Wall St., Losses Spill Over," which is subtitled, "Long Regarded as Safe, Money-Market Funds Are Pulled Into Peril." It says, "[T]he safety of money-market funds has helped shape the decisions of federal regulators about which financial companies to save, according to people familiar with the government's thinking. The funds had relatively little exposure to Lehman, which the government allowed to file for bankruptcy. By contrast, the funds hold large quantities of debt issued by mega-insurer American International Group, a key reason that the Federal Reserve intervened Tuesday to stave off the firm's bankruptcy by taking control of it and offering it an $85 billion emergency loan.... The industry's exposure to companies facing trouble varies widely. Money-market funds have large exposure to investment banks Morgan Stanley and Goldman Sachs. But Peter Rizzo, an analyst with Standard & Poor's, said the funds rated by his company had little exposure to Washington Mutual, the Seattle thrift seeking a buyer as its losses rise."
BusinessWeek writes "Money-market fund's troubles spur industry moves", which says, "OppenheimerFunds Inc. said it would post holdings of its three money funds daily on its Web site beginning Thursday.... Daily postings of fund holdings 'will provide the transparency that shareholders want from their money market funds,' OppenheimerFunds Chief Executive John Murphy said.... The firm said its money funds 'do not have holdings of some of the companies currently in the news, nor do they have direct exposure to subprime mortgage-related securities.'" Businessweek adds, "Similarly Invesco Ltd. on Wednesday said it will post daily holdings updates, and said its U.S. money funds have no exposure to troubled financial services companies."
MarketWatch writes "Firms stress calm as investors flee to safety", which says, "Another Reserve fund, International Liquidity Fund, which is only available to offshore investors, also broke the buck. Also Tuesday, Standard & Poor's Ratings Services said that it had downgraded the Colorado Diversified Trust to Dm from AAAm due to exposure to Lehman paper. S&P said the Trust, which had about $260 million in assets, liquidated Wednesday at a net asset value of 98.2 cents. The Trust held money from local schools and governments. Its assets were transferred to the $3.5 billion Colorado Local Government Liquid Asset Trust."
See also, Bloomberg's "Money-Market Alternatives Are Limited, Advisers Say", FT's "Money markets fund sector shocked", and Reuters' "U.S. fund industry says money funds stable"
