Archive for January, 2011

Large money funds meet first $1 "shadow price" test

Monday, January 31st, 2011 | Finance News

BOSTON/WASHINGTON (Reuters) – The largest U.S. money-market funds reported "shadow prices" at $1 per share or more on the first day of a new federal reporting requirement, an outcome that analysts said should reassure investors shaken by the ride some funds took during the financial crisis.

Factors like interest rate changes mean money fund shares can be worth slightly more or less than $1 each. Funds can value themselves at $1 per share even if their underlying securities are worth between $0.9950 to $1.0050 per share -- a level of detail known as the funds' "shadow price".

The figures released by the U.S. Securities and Exchange Commission on Monday also suggest some firms pumped in extra money to keep the funds above the key $1 level, with an eye on avoiding tough new regulations under discussion for the industry.

"People were well aware of the risks that a value below $1 would be misinterpreted. So from the looks of it I don't think it's a coincidence they're all above that," said Peter Crane, whose website follows the industry. Out of 236 taxable money funds with more than $1 billion in assets, Crane said he counted just 30 with shadow prices of $0.9999 or less.

Valuing shares at $1 apiece has been a selling point for the $2.8 trillion money fund sector because it simplifies tax consequences for investors and administrative costs for companies.

Maintaining even the $1 value proved expensive during the financial crisis. One money fund, The Reserve Primary fund, "broke the buck" and reported its net asset value fell to 97 cents, dragged down by its large stake in the collapsed Lehman Brothers investment bank.

Around the same time, other asset managers had to spend tens of millions of dollars on capital support for their own funds.

Since then the funds have faced a host of reform proposals such as the idea they abandon the $1 per share standard and the creation of a backstop to bail out funds in trouble. The industry has been wary of big changes to the instruments, which already generate little profit.

Some of the largest operators. like Federated Investors (FII.N) and Charles Schwab Corp, (SCHW.N) have had to waive hundreds of millions of dollars in investors' fees because of low interest rates. The impact has been offset somewhat by reduced payments to brokers.

Other new requirements have already gone into effect, such as that funds hold more liquid and highly-rated securities.

Starting Monday funds also were required by the SEC to make a monthly report of the shadow price of their shares.

Filings made public by the SEC showed the shadow prices of the largest money funds as ranked by Thomson Reuters' Lipper unit, including the ten largest, were at $1 or higher as of November 30.

These included the JPMorgan Prime Money Market fund (VPMXX.O), which listed a shadow price of $1.0000; the Fidelity Cash Reserves fund(FDRXX.O), which listed a shadow price of $1.0003; and the Vanguard Prime Money Market (VMMXX.O) fund, which listed a shadow price of $1.0003.

Of the 30 funds Crane said he found with shadow NAVs on the low side, Crane said half were at $0.9999, with only three below $0.9991.

Crane declined to name individual funds. One fund that reported such an NAV was the ProFunds Money Market ProFund (MPIXX.O). It listed a shadow price of $0.9998, according to a filing. A spokesman said executives would not comment.

But the differences did not seem likely to rattle shareholders, Crane said.

That's also the hope of the fund industry and its trade group, the Investment Company Institute, which has been advertising the changes to investors to soothe any jitters about the new rules.

(Reporting by Ross Kerber and Sarah N. Lynch; Editing by Bernard Orr)


91,000 Gulf oil spill claims, just 1 final payment

Monday, January 31st, 2011 | Finance News


OCEAN SPRINGS, Miss. – BP's compensation fund for Gulf oil spill victims has issued a final settlement payment to just one of the thousands of people and businesses waiting for checks, records show, and that $10 million payout went to a company after the oil giant intervened on its behalf.

BP won't identify the business, citing confidentiality, but acknowledges it lobbied for the settlement. The amount far exceeds smaller stopgap payments that some individuals and businesses have received while they wait for their own final settlements.

The Gulf Coast Claims Facility was set up in August to independently administer BP's $20 billion compensation fund in the aftermath of its April 20 oil well blowout off Louisiana.

As of this weekend, roughly 91,000 people and businesses had filed for final settlements, but the fund's administrator, Washington lawyer Kenneth Feinberg, has said those checks won't start rolling out until February at the earliest. Thousands of people have received some money to tide them over until a final settlement amount is offered, but only one business listed as paid on the facility's website has so far received a check.

A BP spokeswoman called it "a unique situation in which an existing BP business partner and BP submitted a view on a specific claim" to the facility.

The facility "reviewed our positions and made an independent decision regarding the outcome of the claim," BP spokeswoman Hejdi Feick said in an e-mail Sunday night to The Associated Press.

Feick did not immediately return a telephone message on Monday seeking additional details.

Feinberg said Monday the facility never reviewed that claim for merit. He said BP struck an outside deal with the business and told the fund to make the payment.

"At the request of the parties, the settlement reached between BP and the other party was paid out of the GCCF fund," Feinberg told the AP. "It was a private settlement and we paid it, but we were not privy to the settlement negotiations between BP and that party.

"We never reviewed the claim," Feinberg added. "We honored the request of the parties to fund the claim."

Rudy Toler, 30, a shrimper and oysterman from Gulfport, Miss., called the payment disgusting.

"It makes me sick," said Toler, a married father of four who hasn't received a dime from the fund. "It's just criminal."

Early on, he filed a claim for losses of about $140,000 for the six months he couldn't work through the summer. He was denied. The claims facility tells him his paperwork is under review again, but in the meantime, Toler is struggling to pay his bills and feed his family.

"I'm doing the best I can," he said Monday. "Every day is a struggle."

Mayor Tony Kennon of Orange Beach, Ala., a tourist town hit particularly hard by the oil spill, said the early settlement payment "reeks of favoritism."

"It stinks," Kennon said Monday. "It's exactly what we've been screaming about. There's not an independent entity. There's no oversight."

Feinberg has faced repeated criticism from lawmakers, plaintiffs attorneys and claimants who complain about a lack of transparency and independence from BP, as well as claims being shortchanged and paid too slowly, or not at all.

His law firm had been receiving $850,000 a month from BP for its work. Feinberg is currently negotiating with BP over a new payment structure to run the fund through August 2013. Any money left over from the $20 billion is expected to be returned to BP.

Feinberg has repeatedly promised fairness and transparency. He calls the program a success and notes it has already paid out more than $3.3 billion to some 251,000 claimants. However, roughly half of the 484,000 claims filed have been denied because of ineligibility or lack of documentation, meaning they got nothing, like Toler.

And while there is an appeals process through the U.S. Coast Guard for disgruntled claimants, the agency has consistently sided with the facility. Feinberg told AP that the Coast Guard had processed 264 out of 507 appeals filed and in every case has agreed with the decisions by the claims fund.

The program first allowed claimants to file for emergency six-month payments to keep them afloat, but many of those claims were denied. Those that weren't often were paid fractions of what they claimed they lost.

The process now allows for three options. Spill victims can file for a quick cash one-time payment of $5,000 for individuals and $25,000 for businesses. More than 80,000 claimants have filed and been paid in that category, giving up their right to anymore money or to sue BP or any other responsible company. Claimants may also opt for a final settlement, but also would have to give up the right to sue. Residents and business owners who aren't ready to make that decision could instead file for interim quarterly payments through August 2013, provided they can show proof of continued losses.


House panel probes Fannie, Freddie legal fees

Monday, January 31st, 2011 | Finance News

WASHINGTON – A leading Republican lawmaker is asking regulators to explain why taxpayers have spent more than $160 million in legal fees to defend the giant mortgage companies Fannie Mae and Freddie Mac and their former top executives.

The legal fees have accrued since the government took over Fannie Mae and Freddie Mac in 2008.

Republican congressman Darrell Issa, who heads the House Oversight and Government Reform Committee, wants the Federal Housing Finance Agency to provide documents backing up its decision to cover the legal costs. His office released a letter to the agency on Monday.

The housing companies nearly went under in 2008 but were rescued by the federal government at a cost, so far, of about $150 billion. The firms and their former executives face lawsuits accusing them of fraud.