U.S. Investors Skittish On European Banks

U.S. Investors Skittish On European Banks

By EL Hengst

American prime money-market funds showed a lack of confidence in Germany’s largest bank in October, pulling back investments to the tune of $8.1 billion.

Among the eight largest funds in the U.S. which purchase corporate debt–a group that includes JPMorgan Chase and Co., Fidelity Investments and BlackRock Inc.–the amount of Deutsche Bank short-term holdings dropped 56 percent in October, to $6.3 billion in total. An analysis by Bloomberg found that the cut in investments in Deutsche Bank constituted the largest drop among 35 of the largest banks in the U.S., Europe, Japan and Canada. While the chief financial officer at Deutsche Bank said the money funds constitute only 3 percent of the bank’s total holdings, financial commentators see the move as a sign of the effects of a growing debt crisis in Europe.

The pull-out of American investments will likely have little effect on Deutsche Bank, said Kinner Lakhani, a financial analyst with Citigroup Inc. The bank was likely well-prepared for the pull-out, and the bank’s own performance shows it has felt little ripples. While the banking industry in general finished the week up 1.4 percent, Deutsche Bank rose 6.1 percent.

The news for Deutsche Bank comes as other financial institutions across Europe come to grips with the effects of a debt crisis there. Banks in France saw money-market funding drop 66 percent billion in October, to $1.3 billion. The last year has been difficult for French banks, with the eight largest money funds pulling out $61.3 billion in total, a 78 percent decline. Societe Generale, France’s second-largest bank, saw investments cut by $15 billion in the past year, causing a loss of 750 million euros ($1 billion) in the process.

There have been signs of hope for the debt crisis. This week Greece swore in a new prime minister, the former vice president of the European Central Bank. The new leader, Lucas Papademos, proposed plans to erect a new national unity government. Also this week the Italian Senate approved an austerity plan, easing fears about the nation’s 10-year government notes climbing above an unsustainable level. This measure of stability in Europe helped performance in U.S. markets, sending stocks rising after a volatile week. On Friday the Dow Jones closed up 260 points and the NASDAQ rose 53 points.

This stability overseas comes at an important time for America. Banks have been the center of protests stemming from the Occupy Wall Street movement, and the imposition of unpopular fees has drawn attention to the confusing and difficult-to-find terms on disclosures. Some organizations and politicians have called on banks to simplify disclosures, and sites like CheckingAccount.com have emerged to give consumers an easy way to compare rates and fees at banks.