U.S.

Money Funds and European Banks: French Exposure Down

Macro Credit Research
October 20, 2011 Continuing European Exposure Decline: As of month-end September, U.S. prime money market funds (MMFs) have reduced their total exposure to European banks by 14% on a dollar basis relative to the prior reporting period of month-end August 2011, and by 37% relative to monthend May 2011 (see the Change in Exposure to Banks table below). European bank exposure currently represents 37.7% of total holdings of $654 billion within Fitchs sample of the 10 largest prime MMFs, a decrease from 42.1% of fund assets as of month-end August. The current exposure level is the lowest in percentage terms for European banks within Fitchs historical time series, which dates back to the second half of 2006 (see Appendix). This share is down from 47.2% as of month-end July, which was based on total MMF holdings of $658 billion.

Analysts
Macro Credit Research Robert Grossman +1 212 908-0535 robert.grossman@fitchratings.com Kevin DAlbert +1 212 908-0823 kevin.dalbert@fitchratings.com Martin Hansen +1 212 908-9190 martin.hansen@fitchratings.com Fund and Asset Manager Group Viktoria Baklanova +1 212 908-9162 viktoria.baklanova@fitchratings.com

Change in Exposure to Banks (on a Dollar Basis)

(% Change in MMF Exposure) Europe France Germany U.K. Canada Nordic Australia Japan Source: Fitch Ratings, MMF public Web sites, SEC filings. Since End-May 2011 (37) (62) (40) (26) 12 0 6 41 Since End-August 2011 (14) (42) (6) (5) 3 4 4 22

Related Research
Rating Banks in a Changing World, Oct. 13, 2011 U.S. Money Funds and European Banks: Exposures and Maturities Continue to Decline, Sept. 23, 2011 European Banks and Market Turmoil: Prolonged Market Stress Negative for European Bank Credit Profiles, Sept. 20, 2011

Research Highlights
Sample based on 10 largest U.S. prime MMFs with total exposure of $654 billion as of Sept. 30, 2011 (down from $676 billion at month-end August), representing 45% of $1.47 trillion in total U.S. prime MMF assets. Geographic exposures to banks (% of total MMF assets): Europe: 37.7% (Declining) France: 6.7% (Declining) Canada: 10.7% (Increasing) Largest exposures to individual banks (% of total MMF assets): Deutsche Bank: 3.5% Westpac: 3.5% Barclays: 3.5%

Trends Vary by Country: Exposure to French banks decreased significantly from 11.2% to 6.7% of MMF assets, which on a dollar basis corresponds to a 42% decline over the past month, and a 62% decline since month-end May (see the Diverging Trends in Exposure to European Banks chart). At its peak in the second half of 2009, exposure to French banks represented 16.4% of all MMF assets. Exposure to U.K. banks decreased from 8.8% to 8.7% of MMF assets over the

Diverging Trends in Exposure to European Banks

France Europe (All) (% of Total MMF Assets Under Management) Nordic United Kingdom

60 50 40 30 20 10 0

11

11

11

11

11 8/

2H 06

1H 07

2H 07

1H 08

2H 08

1H 09

2H 09

1H 10

2H 10

2/

5/

6/

7/

Source: Fitch Ratings, MMF public Web sites, and SEC filings.

www.fitchratings.com

9/

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U.S. Money Funds and European Banks: French Exposure Down

Fitchs sample represents 45% of the Investment Company Institutes estimate of approximately $1.47 trillion in total U.S. prime MMF assets under management. This study focuses on aggregate MMF exposure to banks certificates of deposit (CDs), commercial paper (CP), asset-backed CP (ABCP), repurchase agreements (repos), and other short-term notes and deposits. past month, a dollar-basis decline of 5%. Exposures to Nordic banks increased by 4% (on a dollar basis) since end-August and currently represent 7.2% of total MMF assets, more than France but below the U.K. level. Globally, the MMFs sampled increased their exposure to banks in several countries, including Canada, which is currently the largest single country exposure at 10.7% of total MMF assets. Since the end of August, exposures to Japanese banks increased by 22% and exposures to Australian banks increased by 4%. Shortening Maturities: In recent months, the MMFs sampled have reduced the maturity profile of their CD exposures to European banks in several countries (see the Maturity Trends chart below). As of the end of September, the proportion of MMF exposure to French bank CDs in the shortest maturity bucket (seven days or fewer) remained elevated at 27%. Additionally, there has been an

Largest MMF Exposures Financial Institutions

(As of End-September 2011)
Issuer/Counterparty Deutsche Bank Westpac Barclays Rabobank Bank of Nova Scotia Royal Bank of Canada Credit Suisse BNP Paribas Sumitomo Mitsui JP Morgan Chase National Australia Bank Bank of Tokyo Mitsubishi Svenska Handelsbanken Citibank Commonwealth Bank of Australia CD, CP, Repo, Other/Total MMF Assets Under Management (%) 3.5 3.5 3.5 3.3 3.1 3.0 3.0 2.8 2.7 2.6 2.5 2.5 2.2 2.2 2.1

CD Certificates of deposit. Repo Repurchase agreement. Note: European banks are bolded above. Source: Fitch Ratings, MMF public Web sites, SEC filings.

Maturity Trends
09/30/11 08/31/11 (% of MMFs' CD Exposure by Country) 70 60 50 40 30 20 10 0
UK UK Netherlands Netherlands Netherlands France France France UK

06/30/11

Reliance on MMF Funding: The Bank Reliance on MMF Funding table illustrates bank reliance on MMFs as a source of short-term funding. Of the top 15 MMF exposures to global banks, MMF funding accounts for at least 3% of short-term liabilities for seven institutions. This figure would be higher if it included the full universe of prime MMFs beyond the 10 largest funds, and other private and offshore money funds with similar investment profiles. The figure would also be higher if expressed as a percentage of shortterm dollar funding, a potentially more relevant metric although one that is not feasible to calculate based on current bank disclosures.

Bank Reliance on MMF Funding

(As of End-September 2011)

07 Days

860 Days

61+ Days

Source: Fitch Ratings, MMF public Web sites, SEC filings.

Issuer/Counterparty
Svenska Handelsbanken Westpac Rabobank Bank of Nova Scotia National Australia Bank Royal Bank of Canada Credit Suisse Commonwealth Bank of Australia Deutsche Bank Barclays BNP Paribas Sumitomo Mitsui Citibank JP Morgan Chase Bank of Tokyo Mitsubishi
a

CD, CP, Repo, Other/Financial Institutions Short-Term Liabilitiesa

10.6 6.3 4.5 4.2 4.0 3.6 3.2 2.8 2.1 2.0 1.6 1.3 1.3 1.2 1.1

evident shift in CD maturities out of the longest term bucket (61 days or greater), which now represent just 20% of French bank CDs down from more than half as of the end of June. Within the U.K., bank CDs experienced a proportionate decrease of about 10% from the longest-term bucket, with corresponding increases of roughly 5% in both the short-term and medium-term buckets. The maturity profile of banks in the Netherlands was stable, with slight increases in both the short-term but also in the longest-term buckets. Largest Bank Exposures. The 15 largest exposures to individual banks, as a group, comprise approximately 43% of total MMF assets (see the Largest MMF Exposures Financial Institutions table). There are three new entrants in the top 15 relative to the prior reporting period: Bank of Tokyo Mitsubishi, Citibank, and Commonwealth Bank of Australia. The six European institutions within the top 15 (down from nine institutions in the top 15 as of the end of August) account in aggregate for roughly 18% of total MMF assets.

Total deposits, money market, and short-term funding. CD Certificate of deposit. REPO Repurchase agreement. Note: European banks are bolded above. Source: Fitch Ratings, MMF public Web sites, SEC filings.

October 20, 2011

U.S. Money Funds and European Banks: French Exposure Down

Appendix

MMF Exposure to Bank CDs, CP, Repos, and Other By Country

(As a % of Total MMF Assets Under Management) BE FR DE 2H06 1.4 10.0 10.1 CD 0.5 6.2 3.4 CP 0.8 1.4 3.4 Repo 0.0 0.1 1.2 Other 0.1 2.4 2.0 1H07 2.1 10.4 9.8 CD 1.0 6.1 3.6 CP 0.7 1.1 2.5 Repo 0.0 0.1 1.2 Other 0.4 3.0 2.4 2H07 2.5 8.6 8.4 CD 1.2 4.8 2.1 CP 1.2 1.3 1.9 Repo 0.0 0.4 2.7 Other 0.1 2.1 1.7 1H08 2.6 10.2 7.1 CD 1.1 6.9 2.1 CP 1.0 1.2 1.1 Repo 0.0 0.2 2.9 Other 0.5 1.9 1.0 2H08 0.5 12.7 3.5 CD 0.1 7.7 0.9 CP 0.2 2.1 0.9 Repo 0.0 0.6 0.6 Other 0.2 2.4 1.1 1H09 1.0 16.2 4.9 CD 0.6 11.4 2.2 CP 0.0 2.1 1.0 Repo 0.0 0.8 1.1 Other 0.4 1.9 0.6 2H09 1.8 16.4 6.0 CD 1.0 11.7 2.7 CP 0.3 2.7 1.7 Repo 0.0 0.3 1.2 Other 0.5 1.8 0.4 1H10 1.3 12.7 7.8 CD 0.7 9.1 2.3 CP 0.3 1.7 2.3 Repo 0.0 0.3 2.0 Other 0.3 1.6 1.2 2H10 1.2 14.5 7.8 CD 0.5 10.4 2.4 CP 0.3 2.2 2.1 Repo 0.0 0.6 2.5 Other 0.3 1.4 0.9 Feb. 2011 1.0 13.3 8.2 CD 0.3 8.3 2.8 CP 0.2 2.9 2.0 Repo 0.0 0.9 2.7 Other 0.4 1.2 0.7 May 2011 0.6 15.1 6.8 CD 0.2 9.2 2.4 CP 0.1 3.8 1.4 Repo 0.0 1.2 2.5 Other 0.3 0.9 0.5 June 2011 0.7 14.4 5.5 CD 0.1 9.4 2.0 CP 0.1 3.4 1.4 Repo 0.0 1.0 1.4 Other 0.5 0.6 0.7 July 2011 0.2 14.1 4.6 CD 0.1 9.0 1.8 CP 0.1 3.0 1.1 Repo 0.0 0.9 1.1 Other 0.0 1.2 0.6 Aug. 2011 0.6 11.2 4.8 CD 0.1 5.8 1.3 CP 0.0 3.0 1.3 Repo 0.0 0.9 1.3 Other 0.5 1.6 0.9 IE 0.4 0.3 0.2 0.0 0.0 0.4 0.2 0.1 0.0 0.1 0.8 0.3 0.4 0.0 0.1 1.6 0.8 0.7 0.0 0.1 0.5 0.4 0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.4 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IT 2.4 0.9 0.3 0.0 1.2 1.9 0.5 0.2 0.0 1.2 1.7 0.4 0.3 0.0 1.0 3.2 1.9 0.4 0.0 0.9 2.7 2.3 0.4 0.0 0.0 3.0 2.4 0.6 0.0 0.0 3.2 2.4 0.8 0.0 0.0 1.9 1.0 0.9 0.0 0.0 1.3 0.4 0.9 0.0 0.0 1.5 0.1 1.2 0.0 0.3 0.8 0.1 0.6 0.0 0.1 0.5 0.1 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NL 4.1 1.0 2.6 0.0 0.4 4.3 1.7 2.0 0.0 0.6 4.8 1.3 2.9 0.0 0.7 3.8 1.5 1.6 0.0 0.6 5.1 2.5 2.2 0.0 0.4 5.3 3.7 1.3 0.0 0.3 6.1 4.8 0.8 0.1 0.3 5.7 4.1 1.0 0.2 0.3 6.2 4.4 1.1 0.5 0.1 6.3 4.4 1.3 0.5 0.1 7.2 5.2 1.3 0.6 0.0 7.1 5.4 1.2 0.5 0.0 7.2 5.3 1.2 0.6 0.0 5.8 4.1 1.1 0.6 0.0 Nordic 2.6 0.9 1.1 0.0 0.6 2.9 0.7 1.2 0.0 1.0 3.3 1.4 1.3 0.0 0.7 3.7 0.9 1.5 0.0 1.3 3.7 1.3 1.6 0.0 0.7 4.7 2.1 1.7 0.0 0.9 5.3 3.1 1.4 0.0 0.8 5.8 2.5 1.9 0.0 1.4 5.0 3.2 1.6 0.0 0.2 5.9 2.9 1.8 0.0 1.1 6.2 3.5 1.9 0.1 0.8 5.7 2.8 1.7 0.0 1.2 6.3 3.5 1.9 0.0 0.8 6.7 3.3 2.1 0.0 1.3 PT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.5 0.0 0.0 0.0 0.3 0.2 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ES 0.7 0.1 0.3 0.0 0.3 0.9 0.2 0.1 0.0 0.6 1.9 1.0 0.3 0.0 0.6 2.6 2.1 0.1 0.0 0.4 3.3 2.6 0.6 0.0 0.1 3.2 2.1 0.9 0.0 0.2 2.9 2.0 0.9 0.0 0.0 1.8 1.2 0.5 0.0 0.1 0.6 0.3 0.2 0.0 0.1 0.2 0.1 0.1 0.0 0.0 0.2 0.1 0.0 0.0 0.0 0.2 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 CH 4.0 1.7 0.5 1.3 0.5 4.6 2.8 1.1 0.6 0.1 4.9 2.5 0.6 1.7 0.1 3.4 1.4 0.4 1.2 0.4 2.9 1.2 0.6 0.8 0.3 2.4 1.2 0.5 0.3 0.3 1.5 0.6 0.2 0.5 0.1 1.7 0.4 0.5 0.8 0.0 3.1 1.4 0.3 1.1 0.3 4.2 2.0 0.8 1.2 0.3 4.1 2.1 0.4 1.6 0.0 3.7 1.7 0.3 1.6 0.1 3.9 1.7 0.4 1.5 0.3 3.9 2.2 0.6 1.1 0.0 U.K. 12.8 5.5 3.3 1.2 2.8 13.0 5.1 3.1 1.8 3.1 13.4 6.2 4.2 1.0 2.0 11.0 5.7 2.6 0.9 1.6 10.4 5.5 2.9 1.1 0.9 10.9 6.2 2.0 1.7 1.0 11.2 6.8 1.3 2.6 0.5 9.8 5.8 1.1 2.5 0.3 9.8 4.5 1.9 2.9 0.5 8.6 3.7 1.7 3.2 0.1 10.1 5.3 1.3 3.5 0.1 10.8 5.2 1.1 4.0 0.4 10.5 4.6 1.5 3.9 0.5 8.8 3.1 1.8 3.1 0.8 Europe (All) 48.7 20.4 14.1 3.8 10.4 50.5 22.0 12.2 3.7 12.5 50.5 21.2 14.3 5.8 9.2 49.3 24.4 10.8 5.2 8.9 45.4 24.5 11.7 3.0 6.2 52.3 32.4 10.2 4.0 5.6 55.2 35.8 10.2 4.8 4.4 48.5 27.1 10.3 5.9 5.2 49.6 27.5 10.7 7.7 3.7 49.6 24.7 12.0 8.5 4.4 51.5 28.3 10.7 9.4 3.0 48.8 26.8 9.8 8.4 3.8 47.2 26.2 9.2 7.9 3.8 42.1 19.9 9.9 7.0 5.4 AU 1.6 0.1 1.1 0.0 0.4 2.1 0.4 1.2 0.0 0.5 2.0 0.3 1.0 0.0 0.7 4.0 1.0 1.6 0.0 1.4 4.2 1.9 1.1 0.0 1.2 4.0 1.8 1.3 0.0 0.9 6.2 3.0 2.2 0.0 1.0 6.1 2.3 2.3 0.0 1.5 7.2 3.5 2.6 0.0 1.0 7.0 2.9 3.2 0.0 0.9 7.7 3.5 3.2 0.0 1.0 7.8 3.2 3.3 0.0 1.2 8.1 3.5 3.5 0.0 1.1 8.8 4.0 3.6 0.0 1.2 CA 3.0 2.2 0.4 0.0 0.3 3.0 2.2 0.3 0.0 0.6 3.7 2.5 0.5 0.0 0.7 2.9 1.8 0.3 0.1 0.7 6.2 4.2 1.0 0.2 0.9 5.9 4.8 0.4 0.2 0.5 6.0 5.0 0.6 0.1 0.4 6.9 5.4 0.2 0.5 0.9 7.6 5.8 0.4 0.2 1.1 8.0 6.0 0.5 0.2 1.3 8.3 6.9 0.5 0.2 0.7 9.0 7.1 0.5 0.3 1.0 9.3 7.2 0.5 0.4 1.1 10.0 8.2 0.7 0.3 0.9 JP 2.7 2.6 0.0 0.0 0.1 2.3 2.0 0.1 0.0 0.2 1.8 1.6 0.1 0.0 0.0 1.2 1.0 0.1 0.0 0.1 0.9 0.5 0.2 0.0 0.1 3.5 3.4 0.1 0.0 0.0 4.7 4.5 0.1 0.0 0.0 4.0 3.7 0.3 0.0 0.0 5.5 5.3 0.2 0.0 0.0 4.9 4.6 0.2 0.1 0.0 4.8 4.6 0.0 0.2 0.0 5.3 4.7 0.1 0.2 0.3 4.8 4.3 0.2 0.3 0.0 6.2 5.3 0.4 0.3 0.3 U.S. 24.6 1.3 7.7 5.8 9.7 26.6 1.4 7.4 8.2 9.6 26.7 2.1 9.2 8.0 7.3 18.6 1.3 6.7 4.5 6.1 15.8 1.6 7.8 2.3 4.0 8.4 1.5 3.8 2.0 1.0 9.2 0.6 2.0 4.6 2.0 9.8 0.9 1.9 5.0 2.0 9.4 0.5 1.2 5.0 2.6 8.0 0.4 1.4 4.0 2.2 9.2 0.1 1.1 6.0 2.0 10.4 0.3 1.3 6.8 2.1 9.0 0.5 1.4 5.6 1.6 9.2 0.4 1.6 5.7 1.5

CD Certificates of deposit. Repo Repurchase agreement. BE Belgium. FR France. DE Germany. IE Ireland. IT Italy. NL Netherlands. PT Portugal. ES Spain. CH Switzerland. U.K. United Kingdom. AU Australia. CA Canada. JP Japan. U.S. United States. Continued on next page. Source: Fitch Ratings, MMF public Web sites, SEC filings.

October 20, 2011

U.S. Money Funds and European Banks: French Exposure Down

MMF Exposure to Bank CDs, CP, Repos, and Other By Country (Continued)
(As a % of Total MMF Assets Under Management) Sept. 2011 CD CP Repo Other BE 0.4 0.2 0.0 0.0 0.2 FR 6.7 3.3 2.0 0.7 0.7 DE 4.7 2.2 1.0 0.9 0.6 IE 0.0 0.0 0.0 0.0 0.0 IT 0.0 0.0 0.0 0.0 0.0 NL 5.5 3.6 1.0 0.6 0.2 Nordic 7.2 3.5 2.1 0.0 1.5 PT 0.0 0.0 0.0 0.0 0.0 ES 0.0 0.0 0.0 0.0 0.0 CH 4.5 2.5 0.5 1.1 0.4 U.K. 8.7 2.9 1.4 3.3 1.0 Europe (All) 37.7 18.2 8.2 6.7 4.6 AU 9.4 4.6 3.7 0.0 1.1 CA 10.7 8.4 0.7 0.5 1.1 JP 7.8 7.0 0.2 0.2 0.5 U.S. 9.6 0.7 1.5 5.3 2.1

CD Certificates of deposit. Repo Repurchase agreement. BE Belgium. FR France. DE Germany. IE Ireland. IT Italy. NL Netherlands. PT Portugal. ES Spain. CH Switzerland. U.K. United Kingdom. AU Australia. CA Canada. JP Japan. U.S. United States. Source: Fitch Ratings, MMF public Web sites, SEC filings.

Background on Fitch Study

This research study is intended to provide market participants with information on MMF exposures to European banks and does not comment specifically on Fitch-rated MMFs. At present, the report does not have any ratings implications. For the most recent observation period (i.e. Sept. 30, 2011), the MMFs in Fitchs sample represent roughly $654 billion, or 45%, of the Investment Company Institutes estimate of approximately $1.47 trillion in total U.S. prime MMF assets under management. The sample set is based on public filings from the 10 largest prime institutional and retail MMFs (as measured by assets under management) as of each observation period. Thus, in some cases the MMFs sampled differ slightly from period to period. Because this analysis is based on aggregated data for the 10 MMFs sampled, it does not capture potential differences in exposure profiles across individual funds. MMF exposure to banks encompasses the following instrument types: CDs, CP, ABCP, repos, and corporate notes. Bank exposure data for foreign branches is consolidated within the banking groups home jurisdiction. Exposures to foreign subsidiaries are generally categorized based on the country classification designated by Fitchs financial institutions group. Bank exposure data includes state-controlled financial institutions, where applicable. In order to maintain data integrity, Fitch periodically reviews raw exposure-level holdings data and, if warranted, may reclassify specific exposures (e.g., by asset type, industry sector, counterparty, or country). Reclassification and/or revisions to the dataset can result in (generally minor) changes to the historical time series of MMF exposures. The period of observation covers nine distinct semiannual periods and month-end for February 2011, May 2011, June 2011, July 2011, August 2011, and September 2011. Note that prior to 2011, financial reporting dates often varied across MMFs. Fitch therefore has applied a degree of judgment in categorizing individual MMF filings into the appropriate semiannual bucket within its historical time series.

October 20, 2011

U.S. Money Funds and European Banks: French Exposure Down

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October 20, 2011