Fitch: European USD MMFs Increase non-US Unsecured Financial Exposures

Nov 6 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says European-domiciled US dollar money market funds (MMFs) in Q313 showed higher allocation towards non-US unsecured financials and reduced exposures to government, agencies and government-backed repurchase agreements.

Fitch-rated European MMFs denominated in US dollar have on average around 43% of their portfolio assets concentrated in 20 entities, led by Credit Agricole (TLO: ACA.TI - news) (A/Stable/F1) at 4.4%, and other large European and Japanese banks. Portfolios are on average more diversified across a larger number of issuers and regions compared with euro and sterling MMFs, given a large pool of entities issuing in US dollar. Unsecured exposures to financials, mostly non-US banks, have increased at the expense of secured financial investments via government-backed repo, on the back of ultra low repo rates, and direct investments with sovereigns, government agencies and supranationals.

Exposure to French cooperative banks such as BPCE, Credit Agricole, and BFCM saw the largest increase, followed by RBS (LSE: RBS.L - news) , the Australian and New Zealand Banking Group, and Standard Chartered (HKSE: 2888.HK - news) . Overall, France, the US and the UK still make up most of MMF assets.

The average portfolio rating mix is now showing a dominance of 'F1' rated issuers, at 53% of portfolios on average, up from 38% until June this year. This is due to the downgrade of France's Long-term Issuer Default Rating to 'AA+' in July, followed by the downgrade of the most widely held French banks to 'F1' from 'F1+'.

Corporate issuers remain a small portion of US dollar MMFs at 7.8% on average, with the current largest exposures being Toyota and BMW (Xetra: 519000 - news) .

Overnight and weekly portfolio liquidity remained at high levels (on average at 31% and 40% of fund's assets, respectively). Portfolio liquidity is comfortably above the maximum average weekly outflows observed over a month period at individual fund level, which represented 11% of funds' assets.

Portfolios' weighted average maturities (WAM) and weighted average lives (WAL) have remained broadly stable over a one year period, at 44 and 64 days respectively at end-September 2013, as fund managers do not expect any change in short term market rates in the near term.

Fitch's analysis is based on US dollar MMFs domiciled in Europe and rated by the agency, which represented USD146bn at end-September 2013. It excludes MMFs focusing solely on government assets.Total IMMFA US dollar constant net asset value (CNAV) assets totalled USD282bn at end-September 2013, decreasing slightly over one year.

The full report, entitled "European Money Market Fund Quarterly - US Dollar - Q313", is available at www.fitchratings.com. It is part of a suite of MMF quarterly reports covering euro, sterling and US dollar funds.

Link to Fitch Ratings' Report: European Money Market Fund Quarterly - US Dollar - Q313