BankAmerica Corp. has decided to drop a Standard & Poor's rating on a controversial money market fund after months of effort to regain the credit agency's approval.
BankAmerica said it dropped the rating on its Pacific Horizon Government Fund after finding that most investors do not require it.
The decision by the San Francisco-based banking company came after 12 months of intensive work with S&P to ensure that the fund would maintain its AAA rating.
Last June, the fund was put on S&P credit watch after it ran into problems over its investments in derivatives called structured notes. At the behest of S&P, and in part because of the negative publicity about derivatives, BofA sold the structured notes in its Government and Prime portfolios before they matured, but at a loss.
In December, S&P took the government fund off credit watch and reaffirmed its AAA rating but continued to monitor the fund.
Some institutions have criticized S&P for its guidelines, which are stricter than SEC regulations. Last July, for example, Wilmington Trust Corp. dropped the S&P rating on a money fund after the fund was downgraded.
The banking company said it had a "philosophical disagreement" with S&P over the downgrading, and Wilmington's other rating agency, Moody's Investor Services Inc., did not downgrade the fund.
"AAA is a very high standard," said Sanford Bragg, a managing director at S&P in New York. "Just because BofA doesn't want to maintain the rating doesn't mean it's not a good money fund."
BankAmerica said it made the move only after questioning clients. "Very few clients of the Government fund are aware that this fund is rated, and only a limited number require the rating," said Debra McGinty-Poteet, a BankAmerica senior vice president and head of funds management, in a prepared statement.
"As a result," said Ms. McGinty-Poteet, "we decided to save the expense associated with the rating" - which is $5,500, according to S&P.
Analysts said most institutional investors were unlikely to be concerned over the bank's loss of the S&P rating. In fact, most money funds are not rated. S&P rates 200 SEC-registered money market funds, representing about one-fifth of the total assets in U.S. money funds.
"BofA is right in that most institutions do not require a fund to be rated," said Jon Teall, a spokesman for Lipper Analytical Services in Summit, N.J.