In the wake of a deteriorating European debt crisis, U.S. money market funds have made Canada their top investment destination.
Based on data from Fitch Ratings for the month of September, Canadian banks now represent 10.7% of American money market fund exposure. That is because exposure to Canadian banks increased a whopping 12% from August to September.
The increase comes at the expense of European banks, which have seen U.S. money market funds steadily pull out over the last few months. European bank exposure now represents 37.7% of total holdings of $654-billion, based on a sample of the 10 largest money market funds surveyed by Fitch.
That’s a decrease from the 42.1% of total assets exposed to European banks in August, and a further retreat from the 47.2% exposure in July.
“In percentage terms, the current exposure level is the lowest observed within Fitch’s historical time series, which dates back to second-half 2006,” Robert Grossman, group managing director for Fitch Ratings, said.
U.S. money market funds have been particularly sheepish about France in recent months. Exposure to French banks tumbled to 6.7% in September, down from 11.2% in August. While that was one of the steepest drops thus far, it represents a continuing trend. Exposure to French banks peaked in the second half of 2009, when French lenders represented 16.4% of U.S. money market assets.
So which banks do money market managers prefer? According to Fitch, the top Canadian bank was Bank of Nova Scotia, with 3.1% exposure. That still makes Scotiabank fifth overall, however, trailing Germany’s Deutsche Bank, which averaged 3.5% exposure. Tied with Deutsche for the top spot was the United Kingdom’s Barclays and Australia’s Westpac.
The second most held Canadian bank was Royal Bank of Canada, with 3% exposure. No other Canadian banks made it into the top 10, which represented a combination of European, American, Australian and Japanese lenders.