Putnam, Mellon Spur `Oh, My God' Money-Market Flight (Update2)
By Michael Janofsky
Sept. 19 (Bloomberg) -- Before yesterday, Sheila Bialka, a retired dance and drama teacher in Laguna Woods, California, said she hadn't thought about shifting money out of her money-market account.
Then she learned that Boston-based Putnam Investments LLC closed its $12.3 billion institutional Putnam Prime Money Market Fund and a similar fund run by Bank of New York Mellon Corp. had fallen to less than $1 a share. BNY Mellon's shares fell as much as 36 percent yesterday, then mostly recovered amid a broad market rally and gained as much as 36 percent today.
``Oh, my God,'' said Bialka, 74, whose money is with Fidelity Investments. ``Now I think I will move it. I wasn't concerned before. Now, I am.''
Advisers say larger companies, such as Boston-based Fidelity, have more resources to prop up their money-market funds. Still, fears over potential losses in the low-risk investment accounts have become the latest source of angst for investors as they adjust their portfolios and lifestyles to the tremors of Wall Street.
Investors pulled a record $89.2 billion from money-market funds on Sept. 17, according to data compiled by the Money Fund Report, a newsletter based in Westborough, Massachusetts. The withdrawals totaled a decline of 2.6 percent in money-market assets.
The redemptions countered a trend in which assets in money- market funds increase almost 14 percent, to $3.58 trillion, from January to the beginning of September, according to IMoneyNet Inc., the research firm that publishes the Money Fund Report.
First in 14 Years
U.S. Treasury Secretary Henry Paulson said the government would take ``hundreds of billions'' of troubled assets from banks to try to repair the worst credit crisis since the 1930s. In addition, the U.S. Treasury said today that it would use as much as $50 billion from the government's Exchange Stabilization Fund to temporarily protect investors from money-market fund losses.
``Your typical day doesn't include outflows,'' said Peter Crane, president of Crane Data LLC, which tracks money-market funds.
This week, shareholders pulled more than 60 percent of the assets from Reserve Primary Fund, which on Wednesday became the first money-market fund in 14 years to expose investors to losses.
Financial advisers around the country said they are fielding more calls from clients buffeted by events including the failure of Lehman Brothers Holdings Inc. and the sale of Merrill Lynch & Co. to Bank of America Corp. Now, brokers, say, clients are worried about their funds in money-market accounts, traditional safe havens.
Rattled Nerves
``People are asking if their cash is safe,'' said Cary Carbonaro, president and founder of Family Financial Research, an advisory service based in Huntington, New York and Clermont, Florida. ``I've been telling them yes, but they're still scared. It's bad out there. Really bad.''
Investors have already started withdrawing funds from money markets in the Phoenix area, said Rich Kerr, branch manager of the Charles Schwab Corp. office in Chandler, Arizona. The experience of Reserve Primary, he said, ``has stimulated a greater degree of conversation.''
Though stocks rallied the most in six years Thursday as the Dow Jones Industrial Average jumped 617 points from its low of the day, investors remained jittery over the recent volatility.
Marci Fenske, an air resources technician for the state of California, said she overheard a woman in a restaurant tell her friends that she redeemed all her assets and buried the money in her backyard.
`Walk the Cat'
Carl Mueller, 48, an actor in Los Angeles, said he has begun shopping at a 99-cent store to save money. Chris Calle, 27, a project manager for a concrete company in Dallas, said he has started buying off-label goods at the grocery store.
Ruth May, 75, a retired travel agent in Laguna Woods, said whenever she feels panicky, she calls her financial adviser.
``He tells me to calm down and take a walk with the cat,'' she said.
Mark Berg, president of Timothy Financial Counsel, Inc. in Wheaton, Illinois, said one of his customers, a single mother, decided to trade houses for vacations rather than spend on a traditional getaway.
``People are beginning to be a little more creative in how to moderate the way they live,'' Berg said. ``So, her vacation is essentially free.''
Carbonaro said, ``The biggest question I hear from my clients is, `Should we liquidate everything?''' She said she has been so shaken by recent events on Wall Street that she wakes up in the middle of the night to check foreign markets.
``This is way more than anyone expected,'' she said. ``It's incredibly taxing, psychologically and emotionally.''
Changing Their Lifestyles
Bialka said she has already altered her routines to accommodate the worsening economy. She said she cooks at home more, rather than go to restaurants, and worries that any future bad news might require bigger changes.
``Next thing, I'll have to stop going to the theater and wearing the latest styles,'' she said. ``I might have to start shopping at thrift shops.''
Fenske, 64, said she was sitting alone at Carol's Restaurant in West Sacramento, California, when a group of elderly women at a nearby table were discussing how much money they had been losing in the financial markets.
She said she heard one woman, whom she didn't know, complain that she ``can't take any more hits'' and told her friends, ``I turned everything I had into cash, put it in a lock box and buried it under the shed near the sewer line.''
``I was horrified that somebody else might have heard her,'' Fenske said. ``The placed was crammed. I told her to go home and move it.''
To contact the reporter on this story: Michael Janofsky in Los Angeles at mjanofsky@bloomberg.net
Last Updated: September 19, 2008 12:20 EDT
