Bank of America joins the growing ranks of mutual fund companies that are coming to their money market funds’ aid due to subprime exposure in structured investment vehicles (SIV). BoA said it might spend up to $600 million to support its funds.
Credit Suisse’s SIV exposure in its money market funds has cost it $125 million, Wachovia has bought $40 million of distressed debt from its Evergreen money market fund, Legg Mason invested $100 million in one of its money market funds last month and recently procured $238 million in credit to support two others. Likewise, SEI Investments and Sun Trust Banks have secured credit in the event they need to support their money market funds.
“It’s a no-brainer to spend a few million dollars on troubled securities or lose their entire mutual fund franchise that is making them billions of dollars,” Peter Crane, principal of Crane Data and publisher of the Money Fund Intelligence Newsletter, told The New York Times. “Anyone who is running a big mutual fund has more than their money fund—they have their reputation on the line.”
An industry insider told The Wall Street Journal that other fund companies have approached the Securities and Exchange Commission to ask how to handle SIV exposure in their money market funds.
Bank of America Analyst Michael Hecht estimates that 5% of money market fund assets are in SIV securities. Still, few industry experts believe that money market funds will break the buck.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.