Banks are rapidly gaining market share in sales of money market funds and other short-term investment products, a study found.
Corporations turned to banks for 34% of the short-term investments they used for cash management in the second quarter of 1998, up from 25% a year earlier and 23% in the second quarter of 1995, according to an annual survey by Treasury Strategies Inc., a treasury and cash management consulting firm in Chicago.
Meanwhile, nonbank brokerages - a category that includes big institutions like Goldman, Sachs & Co., Morgan Stanley, and Citigroup's Salomon Smith Barney unit - have seen their market share slide 21 percentage points, to 49%, since 1995, the study said. Their share of the business dropped four percentage points from the second quarter of 1997.
Banks are capitalizing on the relationships they have with their corporate customers to build short-term investment business, said Susan Skerritt, a partner at Treasury Strategies.
It's only in the last 10 years or so that banks have built the infrastructure to make a major push for that business, she said.
"They are reaping the benefits of having established trading operations and broker-dealer-type activities," she said.
The survey drew responses from more than 300 companies with annual revenues of more than $50 million each. The companies were asked who they turned to for instruments like money market funds, repurchase agreements, commercial paper, U.S. government bonds, and certificates of deposit.
The survey found that bank penetration had increased the most among companies with $10 billion or more of annual revenues, a segment of the market that has typically been dominated by nonbank brokerages. It also revealed that money market funds are growing in popularity among short-term investments. Their share was 12% in the second quarter, up from 9% a year earlier.
Money market funds are also gaining acceptability: They were second in short-term investment preference, behind repurchase agreements. A year ago they were ranked fifth.
In repurchase agreements, a seller of U.S. government securities or other instruments agrees to buy them back at a set time and price.