Three years ago today, the world changed, and not just for money market mutual funds. The bankruptcy of Lehman Brothers and the failure of the U.S. Government to save it will likely go down as the biggest single mistake since the Smoot Hawley Tariff triggered the Great Depression. Prior to Reserve Primary Fund "breaking the buck" later that fateful week in September 2008, though, it seemed like it would be just another day of money fund bailouts (which had become almost routine in late 2007 and early 2008). Below, we excerpt from Crane Data's Sept. 15, 2008, News story, "Evergreen Issues Statement Supporting Lehman Holdings in Funds", and we also provide a glimpse into our latest Money Fund Portfolio Holdings collection, which will be released later today.
Crane Data wrote Monday morning (9/15/08), "A number of money market mutual funds are in the process of issuing statements either saying that they have no exposure to Lehman Brothers, which was downgraded to 'Not Prime' from P-1 ('First Tier') earlier today, or saying that they are taking steps to support their funds (or that their holdings are not large enough to impact the $1.00 NAV). Evergreen Investments was the first to issue a statement today saying that they've taken action to support their money funds. Though Lehman CP and MTN holdings are not widespread in money funds, other announcements are expected to follow."
We continued, "Evergreen's web posting says, "Wachovia Corporation has entered into support agreements with Evergreen Money Market Fund, Evergreen Institutional Money Market Fund, and Evergreen Prime Cash Management Fund in which Wachovia will support the value of Lehman credit held in the Funds. These agreements are intended to ensure that the decline in the value of the Lehman debt will not result in a decrease in the net asset value of the Evergreen money market funds.... Recognizing that continued liquidity challenges in the marketplace and ongoing media speculation may create concern for investors, we want to reaffirm Evergreen's commitment to carefully monitoring the situation and to providing information regarding the investment strategies of the firm's money market funds."
Finally, our Crane Data piece added, "Companies issuing statements to shareholders saying that they have NO exposure to Lehman Brothers (some also cite no exposure to AIG and Washington Mutual) include: AIM, American Beacon, BlackRock, DB Advisors, Federated Investors, Morgan Stanley, UBS and Western Asset Management." `Little did we know at the time that Reserve would be unable to arrange for a letter of credit to support its Lehman holdings, and that the world of money market funds was about to change forever.
In other news, Crane Data is preparing to publish its August 31 Money Fund Portfolio Holdings. While we're still proofing, cleaning, and adding Issuer, Country and other "tagging" to the latest dataset, last night we took a preliminary look at the largest issuers and exposure to the giant French banks. We found that money funds continue to reduce their exposure to BNP, SG and CA, but that the holdings remain major and that the retreat continues to be gradual and measured. (Of course, we assume this has reduction continued and perhaps accelerated in September month-to-date. Nobody knows this yet though.)
The top 15 issuers to money market funds as of August 31 (excluding the U.S. Treasury and U.S. Government Agencies), with their total outstandings, monthly asset change (both in billions) and percent change in money fund debt outstanding were: Barclays Bank $118B (+$31B or 35.4%); Deutsche Bank AG $85B (+$10B or 12.7%); BNP Paribas $74B (-$12B or -13.5%); Societe Generale $43B (-$8B or -16.2%); RBS $42 (-$8 or -15.6%); JP Morgan $38B ($2B or 4.9%); Credit Suisse $38B (-$5 or -11.9%); UBS AG $37B (+$1B or 3.7%); Rabobank $36B (-$3 or -8.4%); Bank of Nova Scotia $36B (+$4 or 13.5%); Westpac Banking Corp. $35B (-$2B or -6.1%); Credit Agricole $35B (-$3B or -7.5%); RBC $35B (-$2B or -6.1%); Bank of America $32B (-$9B or -21.6%); and Citi $31B ($0B or -1.5%). Among the largest issuers, the biggest decreases were seen in ING Bank $23B (-$13B or -36.5%) and BNP Paribas $74B (-$12B or -13.5%), while the biggest increases were seen in Barclays Bank $118B (+$31B or 35.4%) and Deutsche Bank AG $85B (+$10B or 12.7%). Our totals include CP (all types), CDs, and "Other" securities. We exclude Treasury and Government agency-backed Repo, but include Other Repo in our counts.
