The Securities and Exchange Commission last week boosted the tally of banking companies that are publicly known to have bailed out money funds for derivative losses.
In respone to a request made under the Freedom of Information Act by USA Today the commission released the names of 14 money market mutual funds that had sold problem derivatives to their fund managers.
The list included funds managed by three banking companies: Barnett-Banks Inc., Jacksonville, Fla., Lasalle National Corp., Chicago, and Union Bank, Los Angeles.
Each company bought tens of millions of dollars of agencybacked floating-rate securities from their money funds that the commission has deemed too risky for money funds.
The disclosure follows announcements earlier this year by BankAmerica Corp., Fleet Financial Group, and Wilmington Trust Co., that they, too, were bailing money funds out of millions of dollars of losses in similar derivatives
Additionally, last week the Wall Street Journal reported that Northern Trust Co. had made a similar bailout.
The transaction was first disclosed in the company's secondquarter earnings report.
Some observers said the pervasiveness of the bailouts called into question the judgment of many money fund managers
"The significant thing we learned was that when we were at the low trough in interest rates, fund sponsors seeking to maintain a competitive edge may have overstepped the bounds of reasonableness in entering into some of these derivative relationships," said Geoffrey H. Bobroff, president of Bobroff Consulting Inc., in East Greenwich, R.I.
But many money fund managers pointed out that the derivatives in question have performed well when interest rates were declining
The instruments also posed little risk of principal loss if they were held to maturity
And some managers said they would have kept the securities ff the Securities and Exchange Commission had not ordered money.funds to shed them.
The biggest reported loss was incurred by BankAmemia which took a $40 million after-tax -charge to earnings for $67.5 million of calbital infusions to two money fund portfolios.
But other banking companies also lost millions, including Fleet Financial Group, which took a $5 million charge to earnings, Northern Trust, which took a $3.5 million charge, Union Bank, which had a $1 million charge, and Wilmington Trust, which has donated $3.8 million to two of its money funds.
These losses could take a serious bite out of what are believed to be slim earnings banking companies make by managing money market mutual funds.
But, in some cases, the losses Could be only on paper
Barnett, for example, has incurred a paper loss of $5 million on $100 million of floatingrate securities purehased from its Prime Fund, said Thomas Johnson, the company's chief retail-banking executive.
The loss reflects the low market value these securities are currently fetching from brokers
But Mr. Johnson said Barnett expected to hold onto these securities until they mature in two years, and thus recoup its entire investment
The commission's disclosure highlights the different approaches money fund managers have taken to shedding problem securities.
Many money funds, including Wilmington Trust and Fleet, simply sold their derivatives on the open market.
The fund managers then donated money to the money funds to make up for the losses.
The commission does not require fund managers to report these transactions. But disclosures must be made if fund managers buy the securities.