Week in review
October 14, 2008
Fed to Buy up to $1.3 Trillion of Commercial Paper
The Federal Reserve announced Tuesday it will buy up to $1.3 trillion of the top-rated asset-backed and unsecured commercial paper in the markets-virtually a business loan bailout due to frozen money markets, the closest the government has come to making loans to businesses directly. It is an extraordinary move, as the commercial paper market, once considered very safe and liquid, had averaged $2 trillion but fell to $1.82 trillion on Sept. 10 and $1.6 trillion on Oct. 1. Issuers of commercial paper that is not asset-backed will be required to pay up-front fees.
The Department of the Treasury said it "believes this is necessary to prevent substantial disruptions to the financial markets and the economy [since the] commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors facing liquidity pressures have become increasingly reluctant to purchase commercial paper."
The government hopes that by eliminating risk in commercial paper, demand will rise, and rates will return to normal levels and money markets will once again be liquid.
Asset Management M&A up 33% in Third Quarter
The credit crisis fueled a substantial 33% increase in asset management mergers and acquisitions in the third quarter, compared to 3Q07, Jefferies Putnam Lovell announced Tuesday. There were 69 M&A deals across the globe, up from 52 a year earlier.
Of these deals, divestitures accounted for 40% of the deals, up from 23%. The total assets under management in deals worth $6.4 billion neared $1 trillion, more than triple the $300 billion of the $6.1 billion worth of deals in the third quarter of 2007.
"As we anticipated, tremors transforming the global financial landscape have served as a catalyst to asset management deal flow," said Aaron Dorr, a managing director with Jefferies Putnam Lovell. Cash-strapped financial institutions are likely to step up their sales of asset management firms to "grapple with investor redemptions and lack of liquidity," Dorr said.
'Speculative Orgy': Bogle's Take on Market Crisis
John Bogle, the indefatigable founder of Vanguard and shareholder activist, likened the current financial crisis to a "speculative orgy like nothing we have ever seen before in the history of the United States," speaking on National Public Radio.
Bogle laid the crux of the problem at the feet of collateralized debt obligations that firms created to eke more yield out of the market. Stock turnover today is double what it was in 1929, and speculators, not traders, drive today's market, Bogle said.
Morningstar Buys Provider Of Closed-End Fund Data
Morningstar has acquired Fundamental Data Ltd. of the UK, a closed-end fund data provider based in London, for $19 million, subject to post-closing adjustments.
Fundamental Data tracks closed-end funds around the world, including the complete universe in the U.S. and the UK, with a database that tracks 1,500 funds, with more that 3,000 data points for each fund, on behalf of clients including major investment banks, stockbrokers, private client advisers, accounting firms, wealth managers and other professionals. Detailed fund information includes price, intraday net asset values and distribution histories, as well as performance, risk statistics and earnings details.
Fundamental Data is also the official provider of data to the Association of Investment Companies, a trade association of closed-end funds in the UK.
Geoff Balzano, chief executive officer of Morningstar UK, said: "Our goal is to continue to build a world-class investment database, and our acquisition of Fundamental Data positions us as a leading provider of global closed-end fund data."
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