Barclays Plc and UBS AG have reduced dependence on U.S. short-term financing in the past year, in contrast to French banks, to become less vulnerable to a reduction in money-market funds’ demand for their securities.
Barclays, Britain’s second-biggest lender by assets, had $11.4 billion in outstanding short-term debt owed to the 10 biggest U.S. prime money-market funds as of Jan. 31, down from $26.3 billion a year earlier, according to a survey of 42 banks by Bloomberg Brief: Risk Newsletter. It was the lender’s sixth consecutive monthly drop. Money-market borrowings by UBS, the biggest Swiss lender, fell to $6.5 billion from $20.7 billion. The declines were the largest posted by banks in the survey.
European banks changed their financing models after the debt crisis in the euro region underscored how vulnerable they were to the attitudes of U.S. money funds. Barclays, based in London, and Zurich-based UBS are shrinking their balance sheets and exiting some businesses, with the U.K. lender relying more on its deposit base for funding.
“We have been strategically reducing our wholesale funding requirements and reducing our reliance on short-term money market funds,” Simon Eaton, a Barclays spokesman, said in an e- mailed statement. “Continuing higher growth in customer deposit inflows” will help keep the proportion of the bank’s wholesale funding maturing in less than 12 months near last year’s 42 percent level through 2015, he said.
Chief Executive Officer Antony Jenkins unveiled a plan this week that will see Barclays cut 3,700 jobs, boost return on equity and dismantle part of its investment bank and European consumer lending unit.
Eaton said the bank’s loan-to-deposit ratio fell to 110 percent in 2012 from 118 percent a year earlier. Barclays cut its wholesale funding to 240 billion pounds ($374.3 billion) at the end of 2012 from 265 billion pounds a year earlier, according to regulatory filings. The proportion of wholesale funding in dollars, including deposits from banks, fell to 31 percent from 37 percent, its 2012 results show.
Barclays had 150 billion pounds of liquid assets to cover wholesale funding at the end of 2012, according to its annual filing. The bank said its 2013 wholesale redemptions were 101 billion pounds.
UBS cut the amount of short-term money market securities it issues by 55 percent last year to 32 billion Swiss francs ($35 billion) at the end of December, filings show.
CEO Sergio Ermotti is cutting 10,000 jobs over three years and exiting most debt-trading businesses to concentrate on money management and boost profitability. Standard & Poor’s analyst Giles Edwards said in a Dec. 21 report that efforts to reduce reliance on commercial paper may boost UBS’s credit rating.
“We may take a positive rating action on UBS if, after further strategic execution, we consider that UBS’s changed business model and risk appetite is highly likely to moderate the group’s revenue and earnings volatility, yielding a more sustainable, stable, strongly capitalized, and less wholesale- funded business,” Edwards said.
By contrast, French banks BNP Paribas SA and Societe Generale SA attracted the second- and third-largest increases in funding over the 12 months ended Jan. 31, at $12.6 billion and $12.4 billion, respectively. The biggest increase was for Japan’s Sumitomo Mitsui Financial Group Inc., the survey showed.
Societe Generale’s money-market funding is above the lows reached in the second half of 2011 as the euro crisis worsened, though wholesale funding has stayed steady at 20 percent of the bank’s funded balance sheet over the past year.
Societe Generale issued $15.2 billion of paper to the ten largest U.S. money funds in January, up from $10.9 billion in December, while BNP Paribas increased its figure to $15.3 billion from $12.3 billion over the period.
JPMorgan Chase & Co. analysts estimated on Feb. 11 that French banks have rebounded to the fourth-largest concentration in prime money market fund portfolios, behind U.S., Japanese, and Canadian banks.
Societe Generale had a liquidity buffer of 133 billion euros at the end of the fourth quarter, according to results released this week, while BNP has 289 billion euros available to cover its 185 billion euros in short-term funding, including long-term refinancing funds from the European Central Bank.
Shares of Barclays, BNP and Societe Generale have risen 33, 35 and 36 percent over the past 12 months, respectively. Shares of UBS have advanced 19 percent.
Barclays, UBS, BNP and Societe Generale have all increased the amount of deposits used to fund their business. In addition to selling commercial paper, certificates of deposit and repurchase agreements to money funds, banks can obtain short- term funding from central banks, interbank repurchase agreements, or by increasing deposit rates to attract more money from individual customers. Banks also hold cash-like instruments in a liquidity pool to meet redemptions.
The funds surveyed were Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional 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. Together, the funds managed $708 billion in assets as of the end of January, including repurchase agreements backed by government debt.