Emerging Issues in

Money Market Funds

Peter Crane

President

Crane Data

Haiwen Hsu

Treasurer

CTBC Bank

(formerly Chinatrust)

2

• Current State of MMFs & Recent Trends

• MF Portfolio Strategies & Holdings

• MM Supply, CP & CD Update

• Emerging Markets Issuance – Solving the Supply Problem?

• CTBC Case Study

• MMFs in Europe, Asia & Emerging Mkts.

• MMF Regulatory Outlook

• In the News; Q&A

Emerging Issues in Money Market Funds

Current State of Money Market Funds

• Regulatory Overhang: SEC Regs Due 2/14?

• MMF Assets $2.7 Trillion (Record was $3.9T)

– Bank Savings Almost $7.0 Trillion

• Still 25 Million Shareholders

• $4.3 Bil. in Annual Revenue? (down from $9B)

• Approx. 1/4 Share of “Cash” Markets

• Zero Yields, Attrition & Consolidation

• Growth & Pressures Overseas

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History of Money Fund Assets

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Money Funds Are Down Almost $1.0 Trillion Over 4 Yrs (-27%), But Still at mid-’07 Levels.

Banks (Still) Taking Trillions From MMFs

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Money Funds Are Down $1.0T (-29.6%)

Over 4 Yrs.; MMDAs Are Up $2.4T (+53.2%)

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Rock Bottom: Ultra-Low Rate Environment

Fund Expenses & Fee Waivers

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Money Fund Revenue Estimates: $2.5 Trillion x 0.16% = $4.0 Billion (7/13); $2.4 Trillion x 0.37% = $8.8 Bil. (7/07)

Money Fund Market Share (8/31/13)

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Types & Number of Money Funds

Minor Consolidation

& Shrinking Universe

Prime MMFs Still King

Prime Inst 31%

Prime Retail 24%

Tax-Exempt 10%

Share classes vs. portfolios

Categorization issues

Taxable MMF Portfolio Composition

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MM Supply, Commercial Paper & CD Update

CD (21.13%) is #1 in Money Fund Portfolio Composition

CP outstanding peak: $2.18T (2007)

CP outstanding low point: $1.063T (2012)

YCD was dominated by Eurozone issuers (before crisis)

YCD/Non-US Financial CP new heavy-weight issuers: Japanese, Canadian, Australia

YCD/Non-US Financial CP new issuers: Singapore, and emerging markets (Chinese/Taiwanese & Chilean)

MM Supply, Commercial Paper & CD Update

CDs Largest

Repo Volatile

– Shrinking

– Reg Pressure

Treasury & Agency Supply

CP Steady

Govt vs. Prime

VRDNs, T-E

Money Fund Portfolio Composition

MMF Largest Portfolio Holdings & Country

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Key Emerging Market Sovereign Credit Ratings • Chile / China / Korea / Mexico / Brazil all investment grade

• Chile & China lead the pack with a ‘AA-’ sovereign credit rating

Jan-9

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Jan-0

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Sta

nd

ard

& P

oo

r's C

red

it R

atin

g S

ca

le

CHILE BRAZIL MEXICO CHINA KOREA

AAA

A

BBB

BB

B

AA

Emerging Markets:

Solving the Supply Problem?

Issuer Type May-13 %

Bank (US) 148 10%

Banks (Eurozone) 197 14%

Banks (other Yankee) 643 45%

ABS/ABCP 89 6%

Corporates 57 4%

US (Tre, Agcy, Muni) 253 18%

Foreign SSA 46 3%

Other 4 0%

Total 1,437 100%

Sample Prime Fund Composition

Data source: JP Morgan Securities LLC

Emerging Markets:

Solving the Supply Problem?

Issuer # Top 3 CP/CD Total Assets

Total 77 14% 666 1,055

Eurozone 15 49% 114 217

France 5 71% 64 125

Germany 5 99% 21 50

Netherlands 4 99% 28 42

Other Europe 13 42% 153 249

Norway 1 100% 16 33

Sweden 4 82% 54 81

Switzerland 2 100% 38 60

UK 6 80% 45 75

Other Regions 49 23% 399 588

Australia 6 78% 90 102

Canada 7 67% 122 150

Chile 4 100% 2 2

China 3 100% 3 3

Japan 8 71% 133 149

Singapore 3 100% 8 8

US 16 68% 42 173 Data source: JP Morgan

Sample Prime fund and Global Bank Exposure

Sample YCD Indicative Rates

Data source: Tradition (North AME)

Data: 2013. 9.27

Rating 1-Mon 2-Mon 3-Mon 4-Mon 5-Mon 6-Mon 9-Mon 12-mon

Japan A1/P1, A/A1 0.15 0.16 0.20 0.21 0.23 0.25 - 0.36

Japan A1/P1, A/A1 0.16 0.17 0.21 0.23 0.24 0.25 - -

Japan (small) A1/P1, A/A1 0.17 0.23 0.27 0.28 0.30 - -

Taiwanese A1/P1, A/A1 0.30 0.38 0.47 - - 0.55 - -

Chinese A1/P1, A/A1 0.30 0.38 0.48 0.54 0.60 0.69 0.73 0.78

Chinese A1/P1, A/A1 0.25 0.33 0.45 0.50 0.55 0.63 - -

Chinese A2/P2, A-/A3 0.30 0.70 1.00 - - - - -

Chinese A2/P3, BBB+/Baa3 0.45 0.65 0.8 - - 0.95 - -

Chilean A1/P1, A/A1 - - - 0.20 0.21 0.23 0.28 0.34

Sample YCD Indicative Rates

Data: 2013. 9.27

Data source: Tradition (North AME)

Rating 1-Mon 2-Mon 3-Mon 4-Mon 5-Mon 6-Mon 9-Mon 12-mon

French A1/P1, A/A1 - 0.17 0.20 0.23 0.30 0.37 0.48 0.56

French A1/P1, A/A1 0.15 0.17 0.20 0.24 0.27 0.31 0.40 0.49

French A1/P1, A/A1 0.11 0.18 0.22 0.25 0.28 0.33 0.44 0.54

French A1/P1, A/A1 - 0.18 0.22 0.25 0.28 0.31 0.43 0.53

Canadian A1/P1, A/A1 0.115 0.075 0.105 0.115 0.125 0.135 0.165 0.195

Key Indicators Of Selected China Banks

Issuer Rating Tier 1 Capital

Ratio (%)

Total loans/deposits

(%)

Return on average

assets (%)

Agricultural Bank of

China Ltd.

A/Stable/A-1 9.7 – 2012

9.5 – 2011

57.1 – 2012

58.4 – 2011

1.3 – 2012

1.1 – 2011

Bank of China A/Stable/A-1 10.2 – 2012

10.1 – 2011

70.6 – 2012

70.9 – 2011

1.2 – 2012

1.1 – 2011

China Construction

Bank Corp.

A/Stable/A-1 11.2 – 2012

11.0 – 2011

64.0 – 2012

65.1 – 2011

1.7 – 2012

1.5 – 2011

Industrial &

Commercial Bank

of China Ltd.

A/Stable/A-1 10.4 – 2012

10.1 – 2011

63.9 – 2012

63.5 – 2011

1.5 – 2012

1.4 – 2011

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Emerging Market Issuers Attracting MMFs

• Banco del Estado De Chile (AA-/Stable/A-1+)

• National Bank of Abu Dhabi (A+/Stable/A-1)

• Qatar National Bank (A+/Stable/A-1)

• Mubadala Development Corp (AA/Stable/A-1+)

• Export-Import Bank of Korea (A+/Stable/A-1)

• Oversea-Chinese Banking Corp (AA-/Stable/A-1+)

Additionally, emerging market issuers found in rated MMFs including

CTBC Bank: Case Study in Funding

CTBC issues Yankee CD

since May, 2012

CTBC Bank Yankee CD Overview

CTBC Bank Yankee CD Overview

Issuer CTBC Bank, New York Branch

Bloomberg Ticker CTCBNY

Issuer’s Rating

S&P: A-1/A, Stable

Moody’s: P-1/A2, Stable

Fitch: F1/A, Stable

Country Rating Taiwan – Moody’s: Aa3, S&P: AA-, Fitch: A+

Inception Date May 9, 2012

Currency USD

Tenor 7 days to 1 year & customized

Minimum Subscription $250,000

Distribution Brokers, Dealers & Direct

Governing Law New York

Issuing and Paying

Agent

BNY Mellon

Source: Bloomberg, CTBC, NY Branch

Taiwan:

Compare to Maryland

Taiwan

• Area: 13,974 sq miles

• Population: 23.34 M

• GDP: $431 billion (2011)

Maryland

• Area: 10,455 sq miles

• Population: 5.885 M

• GDP: $301 billion (2011)

Source: Trading Economics & Maryland Department of Business & Economic Development

Taiwan: GDP

Source: Trading Economics

Taiwan

Quiz: How Big Is Taiwan’s Foreign Debt?

Macro view - Taiwan

NPL Ratio % – Taiwanese Banking Increasing loan quality

resulted in sharp

decrease in non-

performing loan ratio

Significantly lower NPL

ratio than China, Japan,

USA and world’s

average

1.1

4.7

0

5

10

15

20

25

30

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

NPL Ratio % - Other

World

Japan

China

United States

Source: IMF, cnYES

0.62%

Introduction of CTBC Bank

• Date of Establishment: March 14, 1966

• CTBC Bank, formerly known as Chinatrust Commercial Bank

• CTBC Bank,100% owned subsidiary of CTBC Holding, represents 91.6% & 86.9% of

CTBC Holding’s asset & net income, respectively, as of December 31,2012

• Financial Highlights – CTBC Bank (as of December 31, 2012)

– Net Income: USD $631.7 million

– Total Assets: USD $66.4 billion

– Total Number of employees: 9,900

Introduction of CTBC Holding

• Financial highlights – CTBC Holding (as of December 31, 2012)

– Total Assets: USD $72.4 billion

– Total Number of employees: 11,408

• Ownership structure

– Foreign institutional investors’ ownership increases from 20.2% in 2001 to 36.56% in April 2013.

Financial Performance – CTBC Holding

*NTD/USD conversion rate during the period: 29.136 ~32.86

CTBC Bank Geographical Network

Hanoi Rep. Bangkok Rep.

Tokyo Br.

Hong Kong Br.

Kowloon Br.

CTBC Bank (Phils)

PT Bank CTBC Indonesia

New Delhi Br.

Sriperumbudur Br.

New York Br.

CTBC Bank (USA)&

Los Angeles Rep.

CTBC Bank (Canada) Beijing Rep.

Domestic Network: 147 Branches in Taiwan

Overseas Network: 68 Locations

9 Overseas Branches－NY, HK, Kowloon, Tokyo, Ho Chi Minh, New Delhi, Sriperumbudur, Singapore and Shanghai

4 Subsidiaries－CTC Bank Corp. (Canada), CTC Bank Corp. (USA), CTBC Bank(Philippines) Corp., and PT Bank CTBC Indonesia

4 Representative Offices－Beijing, Bangkok, Hanoi, Los Angeles

Singapore Br.

Ho Chi Minh City Br.

Shanghai Br.

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Worldwide & Intl MF Markets ($4.8T)

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Offshore & European Money Funds

Dublin &

Luxembourg

Approx.

$670 Billion

USD, Euro,

GBP

Market

Share

Regs: EU

Proposal,

FSB, IMMFA

Emerging Money Fund Markets

Recent Growth of the Largest Money Fund

Markets Outside of the U.S. & Europe (ICI)

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Regulatory: SEC MMF Reform Proposal

Rule 2a-7 Amendments (2/10)

President’s Working Grp (10/10)

SEC Cancels Vote (8/12)

FSOC Issues Draft (11/12)

SEC Reform Proposal (6/13)

Comment Letters Due (9/13)

Timeline of Events

Current Proposals

Floating NAV (Prime Inst) or

Liquidity Fees/Gates (Prime)

2a-7 Tweaks, Buffer Gone

Final Rule Feb. 2014

Floating NAV Dies, Gates

Letters to Date

Predictions?

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Money Fund News; Q&A

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Contact Info

Haiwen Hsu, CFA

521 5th Avenue, 11th Floor

New York, NY 10175

212-867-5478 Haiwen.Hsu@chinatrust.com

SVP, Head of Treasury

CTBC Bank

New York Branch (Formerly Chinatrust)