Top Money Funds Doubled French Bank Holdings Last Month

The 10 biggest prime U.S. money market mutual funds more than doubled their holdings in French banks in February, as lending from the European Central Bank bolstered investor confidence.

French bank holdings rose to $18.2 billion from $8.8 billion in the month, according to data compiled and published in today’s Bloomberg Risk newsletter. Funds run by New York- based JPMorgan Chase & Co. (JPM) and Boston’s Fidelity Investments accounted for one-third of the total increase.

“It appears the risk trade is back on, but funds are still staying very cautious,” Peter Crane, president of research firm Crane Data LLC in Westborough, Massachusetts, said in a telephone interview.

The top U.S. money market funds have boosted lending to French banks for two straight months after withdrawing from them for most of 2011 because of concern that Europe’s sovereign-debt crisis might lead to defaults. The European Central Bank offered three-year loans to the banks in December and February, easing funding worries surrounding French banks since August.

The funds’ holdings in all European banks declined by $2 billion to $196 billion, according to the data compiled by Bloomberg. Banks in countries seen by investors as safe havens, including Switzerland and Sweden as well as Canada, saw funding decrease.

Prime money funds are eligible to purchase debt and other securities issued by corporations and banks, as opposed to funds that invest exclusively in U.S. government-backed debt.

For the third month in a row, Vanguard Prime Money Market Funds was alone among the 10 funds maintaining its zero allocation to European banks. The fund had been 27 percent invested in European banks in 2010.

JPMorgan, Fidelity

The $120 billion JPMorgan Prime Money Market Fund increased the European bank holdings to 42.2 percent of total assets from 41.9 percent the month before. The level stood at 54 percent in 2010.

Kristen Chambers, a JPMorgan spokeswoman, declined to comment.

Fidelity increased European bank holdings in its Money Market Portfolio and Prime Money Market Portfolio funds to 38 percent and 36 percent, respectively. Its Cash Reserves Fund decreased European holdings to 26 percent from 34 percent.

Vincent Loporchio, a Fidelity spokesman, said the firm’s money funds are well-diversified and invest only in high-quality debt instruments with minimal credit risk.

BNP Paribas SA (BNP) was the biggest beneficiary among the French banks in February, with holdings increasing to $7.3 billion from $2.7 billion. The Paris-based bank reduced its dollar assets by $113 billion to $257 billion in the second half of last year.

U.S., Japan

U.S. money funds aren’t a crucial funding source, according to another Paris-based bank, which saw $3.4 billion invested in February.

“We do not rely on money-market funds in the U.S. any more, and I think that’s very good,” said Frederic Oudea, chief executive officer of Societe Generale (GLE) SA, on a Feb. 16 earnings call.

Outside of Europe, U.S. and Japanese banks attracted the largest amount of new investment in the month. U.S. bank paper increased to $54.3 billion from $46 billion at the end of January. Japanese banks saw a $10 billion increase to $60.6 billion.

The survey included Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Prime Money Market Portfolio, Fidelity Institutional Money Market Portfolio, BlackRock TempFund, Federated Prime Obligations Fund, Schwab Cash Reserves, Western Asset Institutional Liquid Reserves and Dreyfus Cash Management Fund.

To contact the reporters on this story: Radi Khasawneh in London at rkhasawneh1@bloomberg.net; Alberto Fuertes in London at afuertes@bloomberg.net

To contact the editors responsible for this story: Nicholas Dunbar at ndunbar1@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net; Edward Evans at eevans3@bloomberg.net

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