Money Market Madness
Lots in the news lately about money-market funds "breaking the buck". GE just hosed holders of an "enhanced" cash fund, offering them out for 96 cents on the dollar. It is stunning that GE didn't just cover the losses themselves to avoid the terrible publicity. Bank of America, Credit Suisse, Wachovia, Legg Mason & SEI Investments are among the firms who have recently coughed up money to prop up their supposedly safe funds!
Could GE know that worse things are coming and are they afraid of setting a precedent?
To help out a friend, I spot checked a major Wall Street firm's "Prime Portfolio" money-market fund's holdings as of their latest semi-annual April 30, 2007 report.
Admittedly this was before the stuff hit the fan, and for all I know this firm has moved all their money out of such risky investments and into gold bars or something. Still, the results should be shocking to anyone who thinks the $1-per-share price is safe.
Here's just a sampling of holdings in this $28.1 billion money-market fund along with comments where I found out information on the debt issuer.
Barton Capital LLC, 52.153 million
one of the conduits run by the French bank [Societe Generale], holds 185 million euros of subprime mortgages in its 10 billion euros of assets. Hey, it's only $185 million euros.
Gemini Capitalization, $104.75 million
Gemini is a multiseller, partially enhanced, asset-backed commercial paper conduit administered by Deutsche Bank AG. Bet that looks good on someone's business card. You think this is the same Deutsche Bank that had 36 foreclosures in a 2-week period in July in Riverside County alone?
Sheffield Receivables, $77.2 million
A Barclay's conduit, Sheffield has 21 per cent of its assets invested in mortgage securities - the single biggest asset class in which it invests. The conduit has halved its exposure to MBS in the past two months. In July it was 44 per cent invested in mortgage backed paper. They're shrinking in the right direction!
Three Rivers Funding,$262.776 million
Backed by Mellon Bank. Need I say more?
Atlantis One Funding, $344.252 Million
a Dutch "Rabobank" conduit...I think they loan money to create "Robocops".
Buckingham CDO, $275.577 million
40% subprime collateral?? No Enron stock to pledge instead?
Citius Funding (I and II), $418.936 million
CDO's; "Moody's…s Takes Neg Action on Citius II Funding, Ltd. New York" 11-7-07...way to close the barn door after the horse left, Moody's.
Davis Square Funding, $871.5 million
CDO funding structure. The funding vehicles issued notes and commercial paper secured on a portfolio of commercial mortgage backed securities, residential mortgage backed securities, CDO securities, insured securities, asset backed securities, REIT debt securities, interest only securities and synthetic securities. Somebody make a boatload of fees setting this thing up.
Kaiserplatz Funding, $1.389 BILLION
European ABCP conduit from Commerzbank. Apparently can't spell.
Klio Funding Corp, $157.997 million
Nonpublic trustee reports reviewed by BusinessWeek for two Citi-backed CDOs also offer a rare glimpse into the underlying assets of such portfolios. A close look at the holdings for KLIO II Funding and KLIO III—two CDOs that were run by Bear Stearns—shows that about 40% of their portfolios were invested in securities backed by subprime mortgages. These assets, and KLIO stakes in other CDOs such as Knollwood, Porter Square I, and Commodore II, could be ripe for downgrades in the future. Complicating matters, the two Bear Stearn hedge funds traded securities with at least one of the KLIO CDOs. Now, Citi may have to fight with creditors of the bankrupt Bear hedge funds over the CDOs' assets—just one more cloud over Citi's holdings. Nothing says safety like "run by Bear Stearns".
Liberty Harbor II CDO LLC, $130.797 million
It's a CDO, which is bad, but it has the name 'Liberty' in it, which is good.
Nieuw Amsterdam Receivables Corp. $369.238 million (Rabobank)
ABCP Conduit. A conduit is a new way for banks to lose money.
North Sea Funding, $13.151 million
ABN Ambro arbitrage conduit. Arbitrage is a way for the banks to lose more money.
Pasa Funding $290.905 million
Who knows..might have extensive beanie baby collection or something of value.
Simba Funding, $100 million
ING Bank Conduit. Invests in White Lions.
Variable Funding Co, $100 million
You're guess is as good as mine.
Atlantic Asset Securitization, $235.986 million
They must be in some sort of securitization of assets or something. Maybe near the Atlantic.
Falcon Asset Securitization, $249.872 million
I like falcons.
Jupiter Securitization, $83.469 million
$30 billion ABCP program sponsored by JPM. I wonder if that's like an AA sponsor?
Amstel Funding, $587.563 million
ABN Ambro's largest Multiseller USD ABCP program, rated by S&P (as of Q107) at $36bn of exposure. Exposure is the operative word here...$36bn is the operative abbreviation.
Beta Finance, $130 million
SIV, which I think is monkey AIDs.
This stuff is PRIME?
If your steak was the same "Prime" quality it'd be loaded with maggots.
There's no way that this sort of crap can be considered 100% safe. That's why they have the disclaimer, which no one reads, for money-market funds that says:
An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
I think anybody with a significant amount of money in a money-market fund that holds such junk is taking far too big a risk for some extra yield. These ain't US Treasury Bills folks.
Speaking of Treasuries, I compared this same firm's Treasury Money-Market Fund with Vanguard's. Vanguard's Treasury Fund was 99.9% invested in actual US Treasury Bills. The other firm's Treasury fund was .9% (yep, not a typo) invested in actual US Treasury Bills. The other 99.1%? In repurchase agreements with Wall Street firm's collateralized mostly by US Treasury NOTES. Now I'm not sure what the ramifications would be for the fund if one of those firms went belly up and they had to sell the Treasury notes...seems to be there could at least be a significant interest-rate risk there, but I'm not as smart as the guys who set up these deals. These are the same Wall Street firms that are taking $10 billion writeoffs like clockwork and letting their CEOs go with nice $300 million pay packages. You trust them? I don't.
In the end, a money-market fund is no safer than the assets it's invested in, and a lot of money-market funds are invested in mortgage and other garbage.
Could GE know that worse things are coming and are they afraid of setting a precedent?
To help out a friend, I spot checked a major Wall Street firm's "Prime Portfolio" money-market fund's holdings as of their latest semi-annual April 30, 2007 report.
Admittedly this was before the stuff hit the fan, and for all I know this firm has moved all their money out of such risky investments and into gold bars or something. Still, the results should be shocking to anyone who thinks the $1-per-share price is safe.
Here's just a sampling of holdings in this $28.1 billion money-market fund along with comments where I found out information on the debt issuer.
Barton Capital LLC, 52.153 million
one of the conduits run by the French bank [Societe Generale], holds 185 million euros of subprime mortgages in its 10 billion euros of assets. Hey, it's only $185 million euros.
Gemini Capitalization, $104.75 million
Gemini is a multiseller, partially enhanced, asset-backed commercial paper conduit administered by Deutsche Bank AG. Bet that looks good on someone's business card. You think this is the same Deutsche Bank that had 36 foreclosures in a 2-week period in July in Riverside County alone?
Sheffield Receivables, $77.2 million
A Barclay's conduit, Sheffield has 21 per cent of its assets invested in mortgage securities - the single biggest asset class in which it invests. The conduit has halved its exposure to MBS in the past two months. In July it was 44 per cent invested in mortgage backed paper. They're shrinking in the right direction!
Three Rivers Funding,$262.776 million
Backed by Mellon Bank. Need I say more?
Atlantis One Funding, $344.252 Million
a Dutch "Rabobank" conduit...I think they loan money to create "Robocops".
Buckingham CDO, $275.577 million
40% subprime collateral?? No Enron stock to pledge instead?
Citius Funding (I and II), $418.936 million
CDO's; "Moody's…s Takes Neg Action on Citius II Funding, Ltd. New York" 11-7-07...way to close the barn door after the horse left, Moody's.
Davis Square Funding, $871.5 million
CDO funding structure. The funding vehicles issued notes and commercial paper secured on a portfolio of commercial mortgage backed securities, residential mortgage backed securities, CDO securities, insured securities, asset backed securities, REIT debt securities, interest only securities and synthetic securities. Somebody make a boatload of fees setting this thing up.
Kaiserplatz Funding, $1.389 BILLION
European ABCP conduit from Commerzbank. Apparently can't spell.
Klio Funding Corp, $157.997 million
Nonpublic trustee reports reviewed by BusinessWeek for two Citi-backed CDOs also offer a rare glimpse into the underlying assets of such portfolios. A close look at the holdings for KLIO II Funding and KLIO III—two CDOs that were run by Bear Stearns—shows that about 40% of their portfolios were invested in securities backed by subprime mortgages. These assets, and KLIO stakes in other CDOs such as Knollwood, Porter Square I, and Commodore II, could be ripe for downgrades in the future. Complicating matters, the two Bear Stearn hedge funds traded securities with at least one of the KLIO CDOs. Now, Citi may have to fight with creditors of the bankrupt Bear hedge funds over the CDOs' assets—just one more cloud over Citi's holdings. Nothing says safety like "run by Bear Stearns".
Liberty Harbor II CDO LLC, $130.797 million
It's a CDO, which is bad, but it has the name 'Liberty' in it, which is good.
Nieuw Amsterdam Receivables Corp. $369.238 million (Rabobank)
ABCP Conduit. A conduit is a new way for banks to lose money.
North Sea Funding, $13.151 million
ABN Ambro arbitrage conduit. Arbitrage is a way for the banks to lose more money.
Pasa Funding $290.905 million
Who knows..might have extensive beanie baby collection or something of value.
Simba Funding, $100 million
ING Bank Conduit. Invests in White Lions.
Variable Funding Co, $100 million
You're guess is as good as mine.
Atlantic Asset Securitization, $235.986 million
They must be in some sort of securitization of assets or something. Maybe near the Atlantic.
Falcon Asset Securitization, $249.872 million
I like falcons.
Jupiter Securitization, $83.469 million
$30 billion ABCP program sponsored by JPM. I wonder if that's like an AA sponsor?
Amstel Funding, $587.563 million
ABN Ambro's largest Multiseller USD ABCP program, rated by S&P (as of Q107) at $36bn of exposure. Exposure is the operative word here...$36bn is the operative abbreviation.
Beta Finance, $130 million
SIV, which I think is monkey AIDs.
This stuff is PRIME?
If your steak was the same "Prime" quality it'd be loaded with maggots.
There's no way that this sort of crap can be considered 100% safe. That's why they have the disclaimer, which no one reads, for money-market funds that says:
An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
I think anybody with a significant amount of money in a money-market fund that holds such junk is taking far too big a risk for some extra yield. These ain't US Treasury Bills folks.
Speaking of Treasuries, I compared this same firm's Treasury Money-Market Fund with Vanguard's. Vanguard's Treasury Fund was 99.9% invested in actual US Treasury Bills. The other firm's Treasury fund was .9% (yep, not a typo) invested in actual US Treasury Bills. The other 99.1%? In repurchase agreements with Wall Street firm's collateralized mostly by US Treasury NOTES. Now I'm not sure what the ramifications would be for the fund if one of those firms went belly up and they had to sell the Treasury notes...seems to be there could at least be a significant interest-rate risk there, but I'm not as smart as the guys who set up these deals. These are the same Wall Street firms that are taking $10 billion writeoffs like clockwork and letting their CEOs go with nice $300 million pay packages. You trust them? I don't.
In the end, a money-market fund is no safer than the assets it's invested in, and a lot of money-market funds are invested in mortgage and other garbage.
posted by J.Q. Beck at 11/15/2007
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