Two huge US-based financial institutions, JPMorgan and Goldman Sachs, have stopped investing in European money market funds following the European Central Bank’s decision to cut the deposit rate to 0%.
JPMorgan, the world’s biggest provider of money-market funds, won’t accept new cash in five euro-denominated money-market and liquidity funds because the rate cut may result in losses for investors, the company said in a notice to shareholders. Goldman Sachs won’t accept new money in its GS Euro Government Liquid Reserves Fund, and BlackRock, the world’s largest asset manager, is restricting deposits in two European funds.
JPMorgan’s five closed funds had 23.7 billion euros ($29.2 billion) in assets as of July 5, the bank said in an e-mail, about 22% of all euro-denominated money funds. […]
The deposit rate cut “will almost certainly move cash bids in short-dated instruments into negative territory, and so we have taken the step to restrict subscriptions and switches into the funds in order to protect existing shareholders from yield dilution,” JPMorgan said on its website.
The company had $417 billion in money fund assets as of May 31, making it the world leader, according to Crane Data LLC, a research firm based in Westborough, Massachusetts. The entire euro-denominated money fund industry has about 108 billion euros [$132.71 billion], Crane Data’s statistics show.
Tyler Durden of ZeroHedge reports that the Goldman Fund Memo says the European market is now in “unchartered [sic] territory” (the word should be “uncharted”).
Effectively, the European money market industry is now closed and only redemptions will be allowed as nobody can make “money” in money markets in a zero deposit rate environment.
The European Central Bank’s decision is sure to affect its liquid reserves fund, as depositors will want to withdraw from and liquidate their money market accounts since their money is making ZERO in interest.
H/t FOTM’s beloved Joseph.