On Friday, Federated Investors hosted its most recent quarterly earnings conference call. President & CEO Chris Donahue told analysts and listeners, "Looking at cash management, money market average assets increased from the prior quarter for both our funds and our separate accounts. As mentioned last call, expected outflows early in Q1, mainly from flows that came in late in the year, led to lower period end fund assets. Growth in average money fund assets was mainly from wealth management and trust channel, while money market separate account growth reflected tax seasonality. While market conditions remain challenging, our cash management business is strong and stable with our market share steady at around 8.8%."
He continues, "On the regulatory front, money funds continue to be an active topic of discussion. Federated and others support the liquidity bank proposal advanced by the industry through the ICI. This enhancement would complement the new liquidity provisions of 2a-7 and would not socialize credit risk. We do not agree with suggestions that favor bank-like regulation, or bank-like capital requirements, which in our view are far off the point and are more likely to do significant harm than enhance the resiliency of money funds, an important stated objective. In terms of the potential for systemic risk designation, we don't believe that we will nor should be designated, and have submitted commentary and support for our opinions to the regulators."
Donahue added, "Money market mutual fund assets stand at about $237 billion. So far in April, our money fund assets have ranged between, 235 and 245 billion, and the average has been about 239 billion.... We also recently launched a redesigned website, to showcase the insights of our investment professionals and better deliver product and market information and tools to our clients.... We're also actively seeking consolidation deals.... Obviously, we cannot predict the probability and timing of any other deals."
CFO Tom Donahue said, "Money fund yield waivers reduced pre-tax income by $13.1 million for the quarter compared to $12.1 million in the prior quarter.... Based on current market conditions and asset levels, these waivers would reduce income by approximately $17.5 million in the 2nd quarter. Lower short term interest rates, in particular, for repurchase agreements impacted these waivers so far in April. Looking forward, we estimate that gaining 10 basis points in gross yields will likely reduce the impact of these waivers by about one-third from the current level and a 25 base point increase would reduce the impact by about two-thirds."
Money Market CIO Debbie Cunningham commented, "Our interest rate outlook has actually not changed too much from the past two quarters, but it has been impacted in the short term ... by some of the regulatory changes.... From the beginning of April, what we've seen based on the FDIC assessment change is lower overnight Fed funds rates which are the driver for lower overnight repo rates. What was essentially an average repo rate in the low to mid 20's ... became in the neighborhood of the mid to high teens ... and going forward it will [now] likely be in the high single digit area.... That will impact how portfolios are aligned." Cunningham predicts rates will rise by "the end of 2011."
