Fitch affirms AAA money funds but warns of bail-in risk

Written on:April 22, 2014
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Ratings agency Fitch has affirmed 39 European money market funds’ AAAmmf ratings, but has warned that it will monitor how such funds respond to expected downgrades of banks.
The agency has maintained its ratings on the funds offered by 16 managers, which collectively held €271bn of assets at the end of March.
It said that the ratings remain steady due to the portolios’ overall credit quality and diversification, low exposure to interest rate and spread risks, maturity profiles and the capabilities of the asset managers.
But a statement from Fitch warned: “As MMFs hold sizable exposures to the banking sector, Fitch will monitor how MMF managers proactively manage and find suitable high quality replacements to those banks likely to be downgraded as a result of changing assumptions of sovereign support for banks.”
It said the changes in sovereign support were likely to lead to downward revisions of support rating floors for banks in the US, Europe and other countries in the next year or two.
This is likely to lead to downgrades of the banks’ long-term issuer default ratings, which could lead to their short-term ratings falling below Fitch’s highest “F1” level.
The 39 funds reviewed by Fitch are managed by Aberdeen, Amundi, BNP Paribas, CCLA, Federated Investors, Goldman Sachs, Ignis, Insight, JPMorgan, L&G, Lombard Odier, Morgan Stanley, Natixis, Invesco, SSgA and SWIP.
Fitch said that the recent announcement that Standard Life was to acquire Ignis from Phoenix Group has not so far affected liquidity management resources and processes.

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