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U.S. Money Funds Slashed Loans to French Banks by 97% in 2011

U.S. money-market funds reduced their lending to French banks by 97 percent in 2011, according to an analysis of reports from the eight largest U.S. funds published in today’s Bloomberg Risk newsletter.

The funds owned $2.3 billion of French bank certificates of deposit, time deposits, commercial paper and repurchase agreements in December, a drop of 58 percent from the previous month and down from $82 billion at the end of 2010. The funds shifted investments to Japanese, American and Swiss banks, with increases of between 10 percent and 15 percent.

“For now I don’t think we’re likely to see money market investors in the U.S. moving money back into the euro zone,” said Alex Roever, head of short-term fixed-income strategy at JPMorgan Chase & Co. in New York. “However, the data we’re seeing is suggesting that maybe the market’s willing to take a pause here.”

The funds surveyed were Fidelity Cash Reserves, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Fund, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund. They manage about $594 billion in total.

BNP Paribas SA, France’s biggest bank by assets, had the largest decline, with a $3.5 billion cut in December, the data show. Its U.S. money-market funding dropped to $900 million from $13.3 billion in October. Loans to Credit Agricole SA, the second-largest French bank, increased by a third to $1.1 billion. Societe Generale SA remained at $300 million.

Reduced Reliance

“We adapted quickly to the environment and to changes in the money markets, and our latest results indicated that we are ahead of schedule on our U.S. dollar deleveraging plan,” said BNP Paribas spokesman Ilias Catsaros. BNP Paribas had $30 billion on deposit with the U.S. Federal Reserve available as a funding resource, according to a presentation published on its website at the end of December.

The lending figures include repurchase agreements, which are backed by government collateral and have increased as a percentage of total European bank holdings. Repo deals amounted to $23 billion in October, making up 16 percent of European bank securities held at the funds. That marked a 5 percent climb from September.

French banks increased their use of European Central Bank funds by 62 percent in the fourth quarter, according to monthly data published by the Banque de France, France’s central bank.

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