Legg Mason and SunTrust Banks are investing in their money-market funds in an effort to cushion what are considered among the safest investments against possible losses from debt issued by structured investment vehicles. According to an SEC filing, Legg Mason, the second-largest publicly traded U.S. mutual-fund company, has invested $100M in one of its funds and arranged a $238M credit facility for two others. SunTrust, meanwhile, has received regulatory approval to protect two funds that bought debt from Cheyne Finance Plc if the SIV is unable to repay SunTrust. Structured investment vehicles, or SIVs as they are known, borrow money by selling short-term commercial paper and medium-term notes and buying higher-yielding assets such as financial company debt and mortgage-backed bonds. The 10 largest U.S. money-market funds have some $50B of SIV debt, some of which has defaulted because of subprime links. Legg Mason holds $10.7B in SIV debt, or 6% of its $167B in money-market assets. Wachovia also has stepped in to ensure its funds don't fall below $1/share asset value, while Bank of America, Federated Investors and Fidelity Investments are backing a U.S. Treasury plan for an $80B fund to keep SIVs afloat (full story).
Commentary: Legg Mason Recasts Distribution Deal With Citigroup • Credit Crisis Now Worse Than Long-Term Capital –Lehman’s Jack Malvey
Stocks to watch: LM, STI. Competitors: BLK. ETFs: IAI
Earnings call transcript: Legg Mason F2Q08