Moody's Affirms Fidelity A1 Senior Rating
Moody's Investors Service has affirmed the long-term A1 senior unsecured debt rating for FMR, parent company of Fidelity Investments. Moody's said that the broad offerings of FMR-including mutual funds, particularly fixed income and money market funds; brokerage services; and benefits administration-and its strong leadership position in each of these industries, should help it weather the economic meltdown. In particular, Moody's noted, Fidelity's share of equity assets under management is an impressive 14%.
Otherwise, Moody's said, it has a broadly negative outlook on the asset management industry, given the severity of recent market declines. And, Moody's added, despite Fidelity's recent layoffs, its EBIDTA will continue to decline in 2009, due to market conditions.
"The rating affirmation with a stable outlook for Fidelity incorporates our view that the company's business performance is fundamentally sound and that its overall financial profile, while likely to weaken in 2009, can be reasonably maintained within our expectations for the current rating," said Moody's Vice President and Senior Credit Officer Matthew Noll.
However, if the equity markets remain depressed for a prolonged period, putting further pressure on Fidelity's assets under management, margins and debt, Moody's might lower the rating, Noll said.
The last time Moody's rated Fidelity's unsecured debt was Jan. 11, when it was downgraded from Aa3 to A1 with a stable outlook.
Fidelity Credit Card Carries IRA Points
Fidelity Investments has created a credit card in partnership with American Express that allows customers to transfer rewards from retail purchases to their individual retirement accounts.
Similar to the way some cards accrue frequent flier miles, Fidelity's card allows investors to earn two cents for each dollar spent on retail purchases and roll these rewards into a Fidelity IRA account, after they spend at least $2,500.
"With 90% of Fidelity retail customers already using some form of rewards program on their primary credit card, the new Fidelity Retirement Rewards Card allows card members to spend in a much smarter way by using their rewards to fund their retirement accounts," said Carolyn Clancy, Fidelity executive vice president. "This is one of the many ways that Fidelity is helping investors gain more control of their overall financial situation."
Once an investor maxes out their IRA contribution for the year, they can use their rewards in a different Fidelity account or redeem them for travel, merchandise or other rewards, Fidelity said.
"By combining the Fidelity Retirement Rewards Card with the tax-advantaged benefits of the Fidelity IRA, we are giving investors an easy way to continue to save for retirement in the midst of a challenging market," Clancy said.
SEC Chairman Cox Wants Mark-to-Market Clarity
Mark-to-market accounting has merit, but financial institutions need better clarity on its application for very distressed assets, said Securities and Exchange Commission Chairman Christopher Cox.
Cox, speaking at a conference of accounting professionals, stopped short of calling on the Financial Accounting Standards Board to shelve mark-to-market accounting, blamed by some for the credit turmoil. Instead, he said the accounting board needs to give more clarity to address the industry's concerns.
The SEC is finishing up a congressionally mandated study-due Jan. 2-which examines the impact of mark-to-market accounting on financial institutions' balance sheets.
"The work we have already done suggests that the accounting standard-setters could improve upon the existing security impairment models,"Cox told the American Institute of Certified Public Accountants.
"Investors have clearly indicated a view that the current concept of mark-to-market accounting increases the transparency of financial information provided to investors-but that in inactive or illiquid markets, additional guidance would be useful to promote reasonable application of the standards."
Fidelity Cash Reserves Biggest Fund in Nation
The stock market isn't the only thing that has been up-ended by the financial crisis. So has the mutual fund competitive landscape.
Fidelity Cash Reserves, a $130.7 billion money market fund, is now the biggest mutual fund in the nation, surpassing American Funds' Growth Fund of America. And Fidelity Investments is no longer the biggest fund company in the nation; Vanguard is.
Today, only one stock mutual fund is among the five biggest in the nation, and the Vanguard 500 Index Fund, which was the biggest fund in the nation five years ago, with $88.9 billion in assets under management, ranks No. 7 today, with $80.7 in assets.
Only a handful of fund companies have attracted net inflows this year, ProFunds among them, principally because it offers funds that short the market; its assets are up 123% to $23 billion. PIMCO, which principally offers bond funds, has seen its assets grow 3% to $220.3 billion.
Meanwhile, the number of funds being liquidated is up considerably from last year, with 560 funds folding, up from 498 in 2007.
Reserve Sets Payment Schedule for 12 Funds
Reserve Management began payments on 12 of its funds, at $1 per net asset value, last week, with additional payments to continue through the week of Jan. 12. Investors in seven of the funds will be receiving all of their money back.
Meanwhile, Reserve has suspended checking, debit card and automated clearing house withdrawals on 10 state municipal money market funds.
The seven funds to receive all of their payments are: the Connecticut Municipal Money Market Fund, Michigan Municipal Money Market Fund, Minnesota Municipal Money Market Fund, New York Municipal Money Market Fund, Ohio Municipal Money Market Fund, U.S. Government Fund and Virginia Municipal Money Market Fund.
Partial payments will be made on: the California Municipal Money Market Fund, Florida Municipal Money Market Fund, New Jersey Municipal Money Market Fund, Yield Plus Fund and Interstate Tax-Exempt Fund.
The payments range between $1.5 million for the Virginia Municipal Money Market Fund to $570 million for the Yield Plus Fund. In total, Reserve will be returning $837.5 million, with a remaining $886.5 million to be repaid.
At the present time, Reserve does not expect delays, but said if there are problems with reconciliations, that could happen.
Zero Return Becomes Investors' Odd New Goal
Treasury four-week bills that yield zero percent have attracted $30 billion in assets, the Treasury Department announced. And when investors trade the paper with one another, sometimes they get negative yields. This is just further proof of investors' keen aversion to risk. Treasury first issued the notes in 2001.
"No one wants to run the risk of any accidents," Lou Crandall, chief economist with Wrightston ICAP told the Associated Press.
Likewise, money market fund yields have come down sharply. "There's a price for safety," noted Peter Crane, president of Crane Data. Not only are individual and institutional investors going to suffer in the long term if they remain in low-paying Treasuries, but shunning corporate debt will continue to stifle economic growth.
PIMCO Freezes Dividends On Six Closed-End Funds
PIMCO has frozen dividends on six municipal bond funds because the value of their investments is insufficient to cover the funds' debt.
The six funds-PIMCO Municipal Income Funds II and III, PIMCO New York Municipal Income Funds I and III and PIMCO California Municipal Income Funds II and III-will not declare a dividend for December or pay the dividend declared for November, which was payable last Monday.
The funds, launched between June 2001 and October 2002, invest mainly in high-quality municipal debt and use interest payments from the bonds to issue monthly dividends to shareholders.
The funds supplemented the capital raised from selling common shares at their inception by selling a type of preferred stock known as auction-rate preferred shares.
PIMCO, which sold the so-called ARPS for $25,000 each, pays an interest rate on these securities that is reset at an auction every seven days. This closed-end fund design is intended to enhance the dividends paid to common shareholders by leveraging the investments with money borrowed through ARPS.
Under the Investment Company Act of 1940, a closed-end fund's assets must equal at least double the liquidation value of the preferred shares. Otherwise, the fund is not permitted to pay dividends.
"Continued severe market dislocations and further erosions in the municipal bond market" have rocked the value of the funds' bonds, PIMCO said in a statement.
Fidelity Investments Offers Integrated Platform
Fidelity Investments has launched Fidelity WealthCentral, a best-of-breed wealth management platform touted as one that will transform the way advisers conduct business day to day. The platform integrates portfolio management, customer relationship management, financial planning, portfolio rebalancing and trading into one workstation for RIAs, using various technologies from Oracle, Advent, Emerging Information Systems and Northfield Information Services.
WealthCentral is designed to boost efficiency by lessening the burdens of managing technology and performing data reconciliation. In announcing the launch, Fidelity released results from a Moss Adams study concluding that RIA firms that have integrated technology applications make 36% more revenue and 30% greater profits per owner than firms that don't.
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