GE money fund redeeming 96 cts on dollar-Barron's

[mahatmakanejeeves]

Source: Barron's

Wed Nov 14, 2007 6:37pm EST

NEW YORK, Nov 14 (Reuters) - A $5 billion money market fund run by General Electric Co's (GE.N: Quote, Profile, Research) asset management unit is offering investors an option to redeem their holdings at 96 cents on the dollar, Barron's Online reported on Wednesday, becoming the latest casualty of turmoil in U.S. mortgage and credit markets.

The GEAM Trust Enhanced Trust fund's assets primarily come from GE's pension trust and other GE employee benefit plans, Barron's said. In a Nov. 8 e-mail to institutional investors, GE Asset Management said "extreme conditions in the credit markets" are forcing the fund to sell securities at a loss, according to Barron's.

It is extremely rare for money market mutual funds -- which are designed to maintain a constant $1 per share net asset value but lack federal deposit insurance -- to lose principal. In 1994, the $100 million Community Bankers U.S. Government Money Market Fund gave investors back just 94 cents on the dollar.

In recent weeks, Bank of America Corp (BAC.N: Quote, Profile, Research), Legg Mason Inc (LM.N: Quote, Profile, Research) and other fund sponsors stepped in to support money funds. Letting a money fund lose principal would likely damage a sponsor's reputation and prompt investor withdrawals.

GE representatives were not available for immediate comment. (Reporting by Jonathan Stempel; Editing by Jeffrey Benkoe)

Read more: http://www.reuters.com/article/bondsNews/idUSWEN259920071114

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I'm afraid this might be just the first moneymarket fund to break the buck.

Google news for "money market funds"

[Lasher]

1. Woah, and here I was thinking money market funds were safer than bonds.

Although you are pretty much assured of dividends, the principal can lose value particularly if interest rates go up. Money market funds have been paying around 5%.

Edit: This looks like it was a ‘home made’ money market fund run by GE’s pension fund, as opposed to larger ones offered by brokerage firms such as Ameritrade and Fidelity. Note that these firms are stepping in to prevent losses - for now.

[antigop]

7. Is your money market fund safe?

http://www.marketwatch.com/news/story/your-money-market-fund-safe/story.aspx?guid=%7B9933778E-07B9-464A-B087-C54BE8614FFE%7D

[Lasher]

8. Thanks, antigop

For a couple of years my broker has been trying to get me to move from money market where I am heavy to bonds, but I think that's mainly because he would get more commissions. With historically low interest rates, and with reason to believe inflation will drive them upward, I have stayed out of bonds. I have considered short term bond mutual funds but don't see any reason to buy into them when they are paying about what money market is unless you jump into riskier junk bonds.

By far my most successful investments have been in foreign stock mutual funds. They have been doing well partly because their assets are not tied to the US dollar. Might be a good idea to look for a money market fund that is based on the euro, ya think?

[antigop]

9. Actually, what I've wondered about is whether you can open up an account in a non-US bank

Such as a Canadian bank. I don't know what the tax/reporting implications on this would be.

[MADem]

2. WHAT? 96 cents on a weakass dollar? From GE "We Bring Good Wars to Life?"

Fucking Timmy the Potatohead Russert better write another "Gee, Ain't My Paw Swell" book in time for Xmas--he'll need the dough for that overpriced mortgage on that Nantucket home, and doesn't he have a few more spawn at GOP-BC? GE pays that boy's paycheck...they might wanna dump him and slide Dave Gregory into his job--he's younger, has more stamina, and can do double or triple duty if need be.

[hatrack]

3. Uh, hello? GE just broke the buck on a money market fund?

:wtf:

[mahatmakanejeeves]

6. "The GEAM Trust Enhanced Trust fund's assets

primarily come from GE's pension trust and other GE employee benefit plans, Barron's said."

In retrospect, the fund managers made a boo-boo. I'm checking right now to see how a $5 billion fund compares to the big ones in size. I figure Fidelity and Vanguard are the 800-pound gorillas in this industry. The Bloomberg article notes that MMF assets are now $2.97 trillion. Wow, that's a lot of money.

Bank of America, Legg Mason Prop Up Their Money Funds (Update6)

Investors so far have stuck with money funds as a haven amid the credit crisis. Assets rose to a record $2.97 trillion as of Nov. 6, according to the Money Fund Report.

I don't know the rules, but I believe GE has to guarantee the assets in those funds somehow; either that or hand them over to the PBGC.

Pension Benefit Guaranty Corporation (PBGC)

[Tab]

4. This shit is not good

I can assure you, GE did not do this lightly. If GE is doing it, things are in some serious shit.

[liberal N proud]

5. US dollar, will not be worth the paper it is printed on soon

[Zynx]

10. It is high time for a new barrage of financial regulations.

This sort of thing is ridiculous. It would be funny if it wasn't so serious.

[DemReadingDU]

11. afternoon kick

What about money market accounts in Fidelity or Vanguard? Are they safe?

[mahatmakanejeeves]

12. It depends on what

the fund is invested in. Vanguard Money Market Prime, which I think is their biggest, in invested in commercial paper. You can go to the Vanguard website and probably download the fund's annual report to see what that means, but, without looking, I suspect that mortgage problems aren't going to have much of an impact on Prime.

Vanguard has other MM funds that invest in Treasuries and so forth. Fidelity surely has an analogous fund for everything that Vanguard has. They may have some in a position like the GE fund's. If so, then it's up to Vanguard and Fidelity to throw some money into the fund, or let it go below $1 per share. I don't know of any reason I should lose sleep over problems in my MMF - yet.

Clearly, this particular fund of GE's was particularly sensitive to mortgage and credit problems. It was a bet that the fund managers made. Unfortunately for them and the fund's shareholders, the bet did not pan out.

[DemReadingDU]

13. Vanguard Money Market Prime

as of 10/31/07

Bankers Acceptances 2.1%
Certificates of Deposit 50.5%
Commercial Paper 20.9%
Other 4.0%
U.S. Government & Agency 22.6%
Yankee/Foreign 0.0%
Total 100.0%


https://personal.vanguard.com/VGApp/hnw/funds/holdings?FundId=0030&FundIntExt=INT

[DemReadingDU]

14. Vanguard and Fidelity

11/13/07

Federated, Fidelity

Ten funds run by Pittsburgh-based Federated had $5.75 billion in SIV debt, as of Sept. 28, or 8.6 percent of their assets, according to disclosures on the company's Web site. Of the four SIVs whose debt Federated owned, two of them have ``absolutely no subprime exposure,'' Deborah Cunningham, chief investment officer at the Pittsburgh-based company, said on a conference call with investors last month. The other two have less than 1 percent in subprime assets, she said.

Fidelity's money-market funds held $6.51 billion of commercial paper and medium-term notes sold by SIVs including Sigma Finance, according to disclosures on the Boston-based firm's Web site. That represented about 3.5 percent of six funds.

``We can state unequivocally that Fidelity's money-market funds have continued to provide safety and security for our clients' cash investments,'' spokesman Alexi Maravel said in an interview.


Vanguard Steered Clear

Vanguard of Valley Forge, Pennsylvania, steered clear of SIV debt because it has ``little or no'' backstop financing from banks, David Glocke, manager of the closely held firm's $97 billion Prime Money Market Fund, said in an e-mail.

``Without established bank lines that the SIVs can access to cover funding disruptions, they're at the mercy of the market,'' he said.

Goldman Sachs Asset Management said it sold ``a very small position'' in SIV debt earlier this year.

``SIVs are very sensitive to investor confidence,'' Elizabeth Anderson, co-chief investment officer for Goldman's Global Cash Business, said in an interview. ``We decided to sell over worries that things were going to get worse.''

more...
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9FE97M9y63g&refer=home

[Quantess]

15. evening kick