Three of the world’s bank giants in the United States including JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. (NYSE:GS) Inc. and BlackRock, Inc. (NYSE:BLK) restricted its investments in European money market funds, in reaction to the latest zero percent deposit rates implemented by the European Central Bank (ECB). The ECB also lowered its benchmark interest rates by 25 basis points to 0.75 percent.
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Citing a notice issued by JP Morgan Chase to its shareholders, Bloomberg reported that they decided not to accept new investments from five-euro denominated money market and liquidity funds. JP Morgan explained that its decision aims to prevent possible losses for investors due to the current ECB rates. As of July 5, the total asset of the five funds halted by JP Morgan is worth $29.2 billion (23.7 billion euro).
Goldman Sachs Group, Inc. also released a memo to its fund shareholders that it will temporarily discontinue pursuing new investments in the European money market fund. The company explained that the existing condition in the European market is not viable for its portfolio managers to deploy capital without reducing the yield for its current base of shareholders. The company memo stated, “The European market environment is in unchartered territory with such historically low—or even negative—yields for high quality issuance.”
Meanwhile, BlackRock Inc. also restricted its Institutional Euro Liquidity Fund and the Institutional Euro Government Liquidity Fund temporarily for the same reasons. Jessica Greaney, spokesperson for BlackRock said that the company is “monitoring the situation and evaluating options consistent with the best interest of its fund shareholders.”
According to Crane Data LLC, a research firm located in Westborough, Massachusetts the estimated worth of the entire euro-denominated money fund industry is 108 billion euro.
After the three companies announced the temporary shutdown of its European money market funds, the stock value of each of the banks plunged during the closing of the trading on Friday. JP Morgan’s shares declined by 1.40 percent to $33.90 per share, Goldman Sachs dropped by 0.47 percent to $95.47 per share, while BlockRock decreased by 0.27% to $171.28 per share.
What is interesting is that the three giant asset managers/banks all invest in US treasuries and commercial paper. US treasuries and high quality commercial paper all have yields of close to zero. This leads one to conclude that there might be more to this story. Perhaps the real reason for not investing in Euros is due to a fear of the collapse of Europe. We would not be surprised if other giant money market funds follow this action.