Zero interest: Fifth Third exiting the money-fund business
Fifth Third Bancorp announced on Thursday that it is selling its money-market fund operations. Given that scale is crucial in a business currently crimped by low-interest rates and a regulatory clampdown, you can bet more regional banks will follow suit.
Fifth Third Bancorp is exiting the money market fund business. The Midwestern bank announced yesterday it will sell its $5 billion in money market fund assets to Federated Investors Inc.
Fifth Third also is selling its $1 billion mutual fund business to Touchstone Advisors Inc.
In a company statement, Fifth Third said it was leaving both businesses to focus on offering an open architecture environment to its bank clients.
Scott Siefers, managing director of equity research at Sandler O’Neill + Partners LP, said it’s not surprising to see Fifth Third sell off its money market assets, given the pressure the funds are under today. The low-interest-rate environment is causing banks to waive more fees than they collect on money market funds, Mr. Seifers said. “It’s a very difficult time to make a lot of money in the money market business.”
Last year, money market fund providers waived $5.7 billion in fees while collecting just $4.7 billion. And with only $5 billion in money market fund assets, Fifth Third doesn’t have the scale to be a major player in the business anyway, Mr. Seifers said.
Federated Investors, on the other hand, does have the scale, with $285.1 billion in money market funds as of Dec. 31. The deal is set to close in the third quarter.
Mr. Seifers expects that other regional banks to look into similar moves, but he doesn’t expect a rash of banks to follow suit until there is more certainty around money market regulation.
The Securities and Exchange Commission is expected to propose more regulations within the next few weeks. The proposal could require money market funds to float their net asset value, maintain a capital buffer or put limits on redemptions.
Requiring banks to commit capital to ensure that the net asset value of funds stays near $1 a share could lead to changes in how the banks disclose money market funds on their balance sheets. And with all the new capital requirement regulation banks have to comply with, that could be unappealing, Mr. Seifers said.
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