Legg Mason Bails Out Cash Funds
Submitted by
CalculatedRisk on Fri, 12/28/2007 - 3:57pm (17 comments)
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That's a good kind of bailout.
CR and/or Tanta;
I have emailed you asking if I can reprint the excellent new home sales vs. recession chart on my blog. Is it ok to use with full credit given? Let me know as I am in writing process.
JJL, sure.
Best Wishes.
The immediate question is if this was a liability exposure listed on the balance sheet, or if this was an off-balance sheet exposure. The next question is if there might be other financial institutions with liabilities that may or may not be off-balance sheet.
But yes, this is the right move for them. It's a painful move, but it's difficult choices like this that will eventually restore faith in the credit markets.
This is the same bunch of geniuses who recently added to their enormous losing positions in the home builders ... and bragged about it.
Hubris squared.
FT.com / In depth - Legg Mason to bail out money-market funds
They are preventing their mm funds from breaking the buck. Sounds good to me - a good business decision by Legg Mason.
What's the difference between the Legg Mason I knew in 1969 and the Legg Mason of today?
Then it was second tier, at best.
I believe they swapped their brokerage unit to Citi for a bunch of Citi mutual funds only 3 years ago. Could it be that the Citi funds were already infested with SIVs, ABCP, etc. when they were rebranded? That is my working thesis until I can crawl through the wreckage.
SEC rules do not require money market funds to be valued at $1 per share NAV. The $1 per share is a marketing gimmick.
Under SEC 1940 Act Rule 2a-7(b) to call yourself a money market fund, you have to meet "...the conditions of paragraphs (c)(2), (c)(3) and (c)(4)...":
Rule 2a-7 paragraph (c)(2)-Portfolio Maturity [Average maturity of 90 days or less, plus other restrictions on maturity of individual securities.]
Rule 2a-7 paragraph (c)(3)-Portfolio Quality [Holds securities with minimal credit risk.]
Rule 2a-7 paragraph (c)(3)-Portfolio Diversification [Diversified by issuer.]
The link to Rule 2a-7 may be found here:
Rule 2a-7 -- Money Market Funds
"The $1 per share is a marketing gimmick."
I think you mean "marketing essential" since few would buy them otherwise.
why anyone would put investments in the US in 2008 is beyond me. energy and international people that's the play!
OT- What's the opposite of a bailout?
A civil suit filed by investors of First-Republic against Merrill Lynch for hiding their naughty SIV positive bits while they were merging.
Yahoo! 404 - Page Not Found
Remember to leave the curtains opens so the rest of us can watch.
Clyde is right. These SIV positions were for the most part inherited from Citi managed portfolios. The managers at Legg Mason ever since the acquisition have been selling off the SIV positions, but were not able to dump all of it.
Western AM (Legg Mason's fixed income arm) is generally a conservative investor.
CR, I also used that chart on my blog, with full credit given of course . . . but assumed permission.
Thanks!
It doesn't seem possible that a 1.12 billion $ bailout only costs them 15 cents a share. I'm at home and can't really work through their numbers, but that just can't be right.
umber2son - I would never judge a long term value or vulture investor by a 1 week - 1 month - or 1 year return. That investment style isn't my cup of tea - but I can appreciate a longer term investment horizon.
joeblo - If you want to follow any federal lawsuit - you can for the most part. Most courts are on-line these days - and most documents that are filed are public. It is kind of tedious IMO - but if you're interested....
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