It's shocking dear readers, but according to Robert Farzad in this joyless era of return of
capital, people are keen to let banks hold their money for nothing.
Increasingly, though, banks can ill afford that seemingly heads-I-win,
tails-you-lose proposition.
(Go ahead and shake your head like the Aflac duck for a
minute or two.)
On Thursday, the ECB took its benchmark rate down to a
record low of 0.75 percent and its deposit rate to zero. JPMorgan Chase (JPM),
Goldman Sachs (GS), and Blackrock responded not by lapping up supposedly free
investor cash—but by closing their European money market funds to new
investments. Surprise: It’s actually costly to warehouse clients’ short-term,
liquid cash, what with all the administrative expenses involved. Throw in the
relentlessly stingy interest-rate environment, and you’d be hard-pressed not to
lose money in that line of work. Morgan, the world’s top money-market fund
provider, posted an explanatory FAQ and memo to clients. Goldman wrote a notice
to fundholders: “The European market environment is in unchartered territory
with such historically low—or even negative—yields for high-quality issuance.
It is not currently feasible for our portfolio managers to deploy capital
without substantially diluting the yield for the existing base of
shareholders.”
With global interest rates at or near record lows—some are
outright negative—money funds have been struggling to skim a living wage (and
pay the Keurig bill) from what used to be the business of investing client cash
assets….
Wait...wait...there's more at http://www.businessweek.com/articles/2012-07-06/now-wall-street-doesnt-want-your-money
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