U.S. Prime Money-Market Funds Pull $8 Billion From Deutsche Bank

The biggest U.S. prime money-market funds cut their investments in Deutsche Bank AG (DBK) by $8.1 billion in October, the largest drop among 35 of the largest banks in Europe, the U.S., Japan and Canada, Bloomberg analysis shows.

The amount of Deutsche Bank short-term obligations held by the eight biggest U.S. funds eligible to purchase corporate debt, which included offerings from Fidelity Investments, JPMorgan Chase & Co. (JPM) and BlackRock Inc. (BLK), declined by 56 percent to $6.3 billion from Sept. 30 to Oct. 31, according to monthly portfolio updates compiled by Bloomberg and published in today’s Bloomberg Risk newsletter.

Deutsche Bank Chief Financial Officer Stefan Krause said that money funds aren’t a major source of funding on an Oct. 25 earnings call. Krause estimated that the funds provided 3 percent of the bank’s total funding.

Germany’s largest bank said it increased its discretionary unsecured wholesale funding to 135 billion euros from 113 billion euros between the end of June and the end of September, according to a presentation given by Krause at the time. The bank has increased its use of transaction banking and retail funding since the end of 2007, according to the presentation. Transaction banking represented 12 percent of its 1.1 trillion- euro funding at Sept. 30, up 5 percent from the end of 2007.

“What you are seeing is a domino effect on European banks, which have sequentially been affected as European contagion has spread,” Kinner Lakhani, senior bank analyst at Citigroup Inc., said in an interview. “The key point is that Deutsche Bank is likely to have been much better prepared.”

Dollar Funding

Lakhani said the bank’s global transaction services business provides dollar funding as an alternative. In contrast, the main French banks, which also experienced money-market fund outflows, had large U.S. dollar financing operations.

Deutsche Bank spokesman Armin Niedermeier declined to comment further on the bank’s money-market funding changes over the month. “We can’t reconcile these numbers,” he said in an e-mailed statement.

French banks saw their money-market funding decline 25 percent on the month to $16 billion. The drop followed a 44 percent decline in September. Over the last twelve months the eight big money funds have pulled 78 percent, or $61.3 billion, of their funding from French banks.

Credit Agricole, BNP

Among the French banks, commitments to Credit Agricole SA (ACA) saw the biggest decline, falling 66 percent in October to $1.3 billion. BNP Paribas (BNP) SA saw a decline of 10 percent, Societe Generale (GLE) SA lost 11 percent in funding and holdings in Natixis (KN) were cut to zero.

Money funds have cut investments in Societe Generale by $15 billion over the last 12 months, according to the Bloomberg survey. Dollar funding pressures have led the bank to announce it was planning to sell assets and exit some businesses.

Societe Generale expects 750 million euros of losses as a result of these actions, according to a presentation. The bank declined to comment further.

The data was compiled from the most recent disclosures given by the eight largest U.S. money-market funds by assets. The funds surveyed were Fidelity Cash Reserves Fund, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Money Market Portfolio, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund.

The figures include repurchase agreements that are backed by government collateral. Fidelity, which cut its holdings in Deutsche Bank by $5.1 billion across three funds in October, said it was “very comfortable” with its current investments in European banks.

“Our money-market mutual funds remain well-positioned in light of the continued risk and uncertainty unfolding across Europe,” Adam Banker, a spokesman at Fidelity, said in an e- mailed statement.

To contact the reporters on this story: Radi Khasawneh in London at rhasawneh1@bloomberg.net; Alberto Fuertes in London at afuertes@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net; Ted Merz in New York at tmerz@bloomberg.net.