Money Market News
This week, we heard another batch of second-quarter earnings calls for brokerages, and the analyst questions keep pouring in over advisory sweeps, cash sorting and regulatory and legal pressure for some firms to pay higher rates. Ameriprise Financial CFO Walter Berman comments on their Q2 earnings call, "Total cash balances, including third-party money market funds and brokered CDs, were $81.9 billion, which was over 8% of clients' assets. Clients remain heavily concentrated in yield-oriented products, with highly liquid products like money market funds being more in favor than term products like certificates and brokered CDs. We are beginning to see clients put money back to work in wrap and other products on our platform, and we expect this to continue over time as markets and rates normalize, which creates a significant opportunity. Cash balances, excluding money market funds and brokered CDs, were $40.6 billion, driven by normal seasonal tax patterns and the transition of cash related to [the] Comerica partnership.... Underlying cash sweep was stable in the quarter as expected, and that trend continues in July. I want to provide some additional perspective on sweep cash. Our cash sweep is a transaction account for money in motion that is in between investments or for cash to pay fees, which is similar to a bank checking account. `Cash sweep is not meant to be an investment option for significant cash balances over extended periods. We have a broad range of higher-yielding products available for clients seeking to hold cash over extended periods, which is where a large portion of the excess cash has gone. As a result, our clients generally have very low cash …
The Financial Stability Board, an "international body that monitors and makes recommendations about the global financial system," recently published a report titled, "Enhancing the Resilience of Non-Bank Financial Intermediation," which contains a series of recommendations on global money market fund regulations. The group explains in their summary, "Conjunctural and structural developments in the global financial system over the past decade have increased the reliance on market-based intermediation. Non-bank financial intermediation (NBFI) has grown to almost half of global financial assets and become more diverse. As a result, the importance of NBFI for the financing of the real economy has increased. However, the experience of the 2008 global financial crisis, the March 2020 market turmoil and more recent episodes of market stress demonstrated that NBFI can also create or amplify systemic risk." (See the FSB's press release, "FSB Chair calls for further progress implementing non-bank financial intermediation reforms," and their letter, "FSB Chair's letter to G20 Finance Ministers and Central Bank Governors: July 2024.")
We're ramping up preparations for our 10th Annual Crane's European Money Fund Symposium, which will take place Sept. 19-20 at the Hilton London Tower Bridge in London, England. The latest agenda is now available and registrations are now being taken for our European money market mutual fund event. We provide more details on the show below, and feel free to contact us for more information. Our 2023 European Symposium event in Edinburgh attracted over 150 money fund professionals, sponsors and speakers. Given the return attractive rates and expectations for another round of regulatory changes in Europe, we expect our show in London to once again be the largest gathering of money market professionals outside the U.S.
We've seen 15 Prime Institutional money funds with over $250 billion in assets (over 1/3 of the sector) announce exits from the space to date, but now comes a decision by one to live with the new rules in a unique way. A Prospectus Supplement for First American's Institutional Prime Obligations Fund" tells us, "In July 2023, the U.S. Securities and Exchange Commission ('SEC') adopted amendments to Rule 2a-7 under the Investment Company Act of 1940, as amended. Among other requirements, the Amendments will require institutional prime and institutional tax-exempt money market funds, including First American Institutional Prime Obligations Fund, to impose a mandatory liquidity fee when such funds experience daily net redemptions that exceed 5% of net assets based on net redemption information available within a reasonable period after the last computation of each such fund's net asset value on a particular day. Funds subject to the mandatory liquidity fee will not be required to apply such fee if the amount of the fee is less than 0.01% of the value of the shares redeemed."
Last week, Federal Reserve Bank of Dallas President Lorie Logan gave a speech titled, "A level playing field for deposit insurance," which discussed increasing the FDIC deposit limit and other means of preventing bank deposit runs. The talk took place at a conference with the theme, "Exploring Conventional Bank Funding Regimes in an Unconventional World." Discussing "The importance of bank funding," she tells us, "Funding risk is both one of the oldest challenges in banking and one of the most timely. The most basic activity banks do is transform deposits into longer-term investments. Banks accept deposits, promise to return them whenever depositors want and invest in the meantime in less-liquid assets, such as loans that finance investment and fuel economic growth. So, as I'm sure the panelists in our history session this afternoon will discuss, bankers have long understood the importance of being prepared to meet withdrawals -- and of maintaining depositors' confidence so they don't withdraw money based on unfounded fears."
We wrote earlier this week on a number of earnings reports which show a continued shift from bank deposits into money market funds. (See our July 17 News, "Schwab, BlackRock Q2 Earnings: Cash Migration Slowing, But Continues.") The Wall Street Journal covers the topic in, "Yield-Hungry Wealth Management Clients Are Becoming a Headache for Big Banks." They explain, "Brokerage customers are still demanding more for their cash. And banks are scrambling to keep up. Across several banks with large wealth-management businesses, a common theme in second-quarter earnings reports was continuing to have to pay higher rates to hang on to brokerage customers' cash that isn't invested in things like stocks and bonds. Wells Fargo and Morgan Stanley called out increases in some of the rates they pay on certain brokerage account deposit products, and Bank of America noted a rise in rates paid on wealth-management deposits."
The last set of announcements on funds planning to exit the Prime Institutional Money Fund space took place a little over a month ago. But we recently found a new batch of funds declaring exits ahead of the October 2 deadline for the new emergency liquidity rules in the latest round of Money Fund Reforms. A filing for the $5.8 billion Schwab Variable Share Price Money Fund (SVUXX) tells us, "The Board of Trustees of The Charles Schwab Family of Funds has determined that it is in the best interest of the Schwab Variable Share Price Money Fund, a series of the Trust, and its shareholders to reorganize with and into the Schwab Government Money Fund. Accordingly, the Board has approved an Agreement and Plan of Reorganization that would provide for the reorganization of the Acquired Fund into the Surviving Fund. (See the Crane Data News updates, "Invesco Files to Liquidate Prime Inst MMFs; UBS MF Converting to Retail" (6/13/24) and "BlackRock Liquidates TempFund, LEAF" (6/10/24).)
Asset managers, brokerages and banks continue to report second-quarter earnings, and several of the calls have discussed money fund and "cash sorting". On the "Charles Schwab Corporation 2024 Summer Business Update Tuesday, CFO Peter Crawford comments, "I'll provide some high-level perspective on what we're seeing with regard to our clients' transactional cash.... The important point is that we are proceeding through what we've described ... as a transitional year, but ... at a slightly faster pace than we had anticipated just six months ago, with ... a continued moderation of client cash realignment activity despite seasonal pressures and the impact of very high investor engagement, [and] sequential growth in our net interest margin." Schwab's money fund assets rose to an average of $523.7 billion in Q2'24 from $375.9 billion a year earlier, an increase of $147.8 billion, or 39.3%. Deposits fell from $312.5 billion a year ago to $258.1 billion in Q2, a decline of $54.4 billion, or -17.4%. according to their quarterly earnings release. (See Seeking Alpha's Schwab update transcript here.)
Crane Data's latest Money Fund Intelligence International shows that assets in European or "offshore" money market mutual funds moved higher over the past 30 days to a record $1.292 trillion, while yields were mostly flat. Assets for EUR and GBP MMFs rose over the past month, while USD MMFs fell. Like U.S. money fund assets, European MMFs have repeatedly hit record highs in 2023 and 2024. These U.S.-style money funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, increased by $20.7 billion over the 30 days through 7/12. The totals are up $94.6 billion (7.9%) year-to-date for 2024, they were up $166.9 billion (16.2%) for the year 2023. (Note that currency moves in the U.S. dollar cause Euro and Sterling totals to shift when they're translated back into totals in U.S. dollars. See our latest MFI International for more on the "offshore" money fund marketplace. These funds are only available to qualified, non-U.S. investors and are almost entirely institutional.) (Note too: Please join us for our European Money Fund Symposium, which will take place Sept. 19-20, 2024 in London, England. Registrations are $1,000 and our discounted hotel rate expires August 14.)
The July issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the stories, "Worldwide BF Assets Jump to $13.0 Trillion, Led by U.S.," which quotes from ICI's latest global asset totals, and "Ho, Sabatino, Weaver Discuss Alt-Cash, Ultra-Shorts at MFS," which excerpts from our annual Money Fund Symposium held in Pittsburgh last month. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns rose in June while yields were mixed. We excerpt from the new issue below. (Contact us if you'd like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)
One year ago, we wrote that the "SEC Adopts Money Market Fund Reforms," which reviewed the U.S. Securities & Exchange Commission's latest attempt to make money funds more robust and able to withstand events like the March 2020 Covid crisis. Our update said, the "Money Market Fund Reforms ... abandoned [the SEC's] swing pricing proposal for Prime and Tax Exempt Institutional money market funds and replaced it with a mandatory liquidity fee regime. They also increased liquidity and disclosure requirements." We review the reforms with a focus on the latest piece to go live -- the Form N-MFP disclosures -- below. (Note: Crane Data has been adjusting our Form N-MFP data files to incorporate the latest data reporting changes. Our files have now been posted for Money Fund Wisdom subscribers, though we'll no doubt be tweaking and correcting some issues in the coming days.)
Crane Data's July Money Fund Portfolio Holdings, with data as of June 30, 2024, show that Repo holdings jumped while, Other, Treasuries and Agencies fell. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $0.4 billion to $6.346.1 trillion in June, after increasing $105.6 Billion in May and decreasing $61.4 billion in April. Assets decreased $63.1 billion in March, increased $66.9 in February, $86.6 in January, $51.1 billion in December and $244.0 billion in November. They decreased $57.9 billion in October, but increased $56.1 in September, and $106.7 billion in August. Repo continues to bounce back and remained as the largest portfolio segment after reclaiming the top spot two months prior, increasing $99.3 billion in June, following a steep slide four months prior. Treasuries decreased by $17.3 billion, staying at the No. 2 spot among portfolio segments. The U.S. Treasury continues to be the single largest Issuer to MMFs. `In June, U.S. Treasury holdings decreased to $2.428 trillion, while the Fed RRP's increased by $200.4 billion to $614.9 billion. Agencies were the third largest segment, CP remained fourth, ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: We still haven' …
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