U.S. Money Funds Cut French Lending by 44%

September loans fell as debt crisis escalated

The eight biggest U.S. money market funds slashed their lending to French banks in September by a staggering 44% overall, with some bank holdings falling even further as worries over the eurozone debt crisis multiplied.

The Thursday Bloomberg Risk newsletter figures revealed that the funds’ holdings in BNP Paribas, Société Generale, Natixis and Credit Agricole dropped to $23.2 billion at the end of the month, from August’s total of $41.5 billion. Natixis was the biggest loser, down 74%, with Credit Agricole next at 64%. Société Generale was down 51% to $3 billion; BNP Paribas dropped 20% to $14.8 billion. The funds have also reduced their holdings in KBC Groep, the biggest lender in Belgium, by 80% to $587 million.

Over the last year, Société Generale funding from U.S. money market funds has dropped 83%; BNP Paribas has fallen 40%.

The funds control $592.4 billion in assets among them and disclose holdings each month; the report cited figures based on the most recent portfolio disclosures by Fidelity Cash Reserves Fund, JPMorgan Prime Money Market Fund, Vanguard Prime Money Market Find, Fidelity Institutional Money Market Portfolio, Fidelity Institutional Prime Money Market Portfolio, BlackRock TempFund, Wells Fargo Advantage Heritage Money Markets Fund and Federated Prime Obligations Fund.

Worries over the ability to access wholesale markets has led the funds to slash loans; that in turn has driven European Union banks to seek short-term cash from the European Central Bank.

A report by Huw van Steenis, an analyst at Morgan Stanley in London, was quoted saying, “There has been a substantial decrease in access to the wholesale funding markets whether for money market funds, debt security issuance or securitization. Banks expect that funding markets will continue to deteriorate albeit at a slower pace.”

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