U.S. Money Funds Favor Japan, Shun Euro-Area Banks, Survey Shows

The 10 biggest U.S. money market funds boosted holdings of Japanese bank securities to $79 billion at the end of August, more than any other country, as they shift money to Asia and away from Europe.

Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc., Japan’s three biggest banks, attracted $3.5 billion from the funds, continuing a 12-month trend, a monthly survey by the Bloomberg Risk Newsletter found.

Japanese bank holdings accounted for 11.5 percent of the funds’ total holdings last month, compared with 6.8 percent a year earlier. The funds reduced their euro-area holdings by 60 percent in the 12 months through August, according to the survey. By getting funding in dollars, Japanese lenders are able to expand their lending overseas.

“There is an interesting parallel between the inflow of money market funding to Japanese banks and their rise within the project finance league tables over this same period,” Kevin D’Albert, an analyst at Fitch Ratings in New York, wrote in an Aug. 29 report.

Project financings are used to fund large-scale infrastructure, public services and industrial developments. The debt is typically secured solely on the project rather than the companies involved in the development.

The Fitch report estimated that Mitsubishi UFJ increased its share of the project finance market to 8.6 percent in the first half of the year from 3.6 percent in the second half of 2010. Sumitomo Mitsui and Mizuho become top-10 lenders in the industry in the first six months of this year.

Mitsubishi UFJ

Mitsubishi UFJ climbed to second from eighth in the global project finance league tables last year, with $9.49 billion of new loans, while Sumitomo Mitsui was third, compared with 10th a year earlier, according to a May 23 Mitsubishi UFJ investor presentation. Tokyo-based Mitsubishi UFJ has targeted a 40 percent growth in profit from project finance loans in the three years ending March 2015, the presentation said.

The bank’s total includes 3.8 billion pounds ($6.2 billion) of loans it bought from Royal Bank of Scotland Group Plc at the end of 2010. Mitsubishi UFJ and Sumitomo Mitsui were the top two arrangers of project-finance syndicated loans in Europe, the Middle East and Africa between January 1 and Sept. 13, according to data compiled by Bloomberg.

Mizuho expects to boost overseas lending by as much as 30 percent a year, targeting Asian companies unable to borrow from European banks, Nobuhide Hayashi, managing executive officer at Mizuho’s corporate banking unit, said in an interview in July.

Overseas Loans

The bank increased its foreign currency deposits and sold a $1.5 billion senior bond in the first quarter to meet increased demand for overseas loans, it said earlier this month.

Total assets under management at the 10 funds increased to $681.7 billion on August 31 from $678.7 billion on July 31. Prime funds are those not restricted to securities backed by the U.S. government. Japan’s banks together have received $32 billion from the funds during the last 12 months.

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.

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