The newly created Money Market Investor Funding Facility (MMIFF) will help money market funds meet redemption needs and keep from “breaking the buck” – dropping below the normal $1 in net asset value – as The Reserve Primary Fund (RFIXX) did after the collapse of Wall Street investment-banking giant Lehman Brothers Holdings Inc. (OTC: LEHMQ). Struggling money-market funds that have seen more than $500 billion in redemptions since Lehman’s demise.

“The short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs,” the Fed statement announcing the new program read.

Losses on Lehman debt caused The Reserve Management Co. to mark down its Primary Fund’s net asset value (NAV) to 97 cents. It was the first time a money market fund had been forced to lower its NAV below $1 in 14 years. What followed was a half-trillion-dollar outflow from money market funds as institutional investors pulled their cash out of the funds to seek out the safety of U.S. Treasuries.

“By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments,” the Fed statement read.   “Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households.”

The Fed selected JPMorgan Chase & Co. (JPM) to oversee the new program. JPMorgan will set up five “special purpose vehicles” through which money market fund managers can access Fed funds in exchange for dollar-denominated certificates of deposit, bank notes and commercial paper with maturities of less than 90 days.

Despite the half a trillion dollars in redemptions, the money-market industry still accounts for $1.7 trillion in assets. Cash outflows have slowed since August, Reuters reported, but money market funds have been left with very slim liquidity margins.

The Fed will supply $540 billion, with a remaining $60 billion to be raised from commercial paper sold by the five newly formed units.

“In terms of the redemptions money-market funds are seeing, and hedge funds as well, any of these moves by the Fed are going to help,” Mike Holland, chairman and founder of Holland & Co. LLC in New York, said in an interview with Bloomberg Television.

Holland predicted redemptions would ease with the creation of the MMIFF program.

Source: Fed Steps in with $600 Billion Plan to Bolster Money Market Funds

• The Reserve’s Primary Fund (RFIXX), one of the largest and oldest U.S. money market funds was forced to place a 7-day freeze on redemptions when its net asset value (NAV) fell below $1. The fund’s shares dropped to 97 cents as its $785 million holding of Lehman Brothers Holdings Inc. (LEH) debt has been valued at zero, The Reserve said, MarketWatch reported.

• SanDisk Corp. (SNDK) stock surged almost 40% after Samsung Electronics Co. Ltd. made a $5.85 billion hostile takeover offer for the memory-device maker. SanDisk shares surged $5.88 to close at $20.92 yesterday (Wednesday).

• The price of gold skyrocketed yesterday (Wednesday) posting its biggest one-day gain ever in dollar terms. Gold for December delivery rose as much as $90.40, or 11.6%, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session, The Associated Press reported.

• Oil ended its slump yesterday (Wednesday) shooting up $6 a barrel after a week and a half of substantial declines. Light, sweet crude for October delivery rose $6.01, or 6.59 percent, to settle at $97.16 a barrel on the New York Mercantile Exchange. Prices slid more than $5 to close at $91.15 on Tuesday.

• Construction of new homes grew at the weakest pace in 17 years in August, dropping 6.2% the Commerce Department reported. Building permits, an indicator of future activity, dropped 8.9% for the month to an annual rate of 854,000 units.

• Barclays PLC (ADR: BCS) said yesterday (Wednesday) that it could acquire more Lehman Brothers Holdings Inc. (LEH) assets to expand its presence in Europe and Asia. “We wouldn’t want to miss the opportunity to add some of the talent from the U.K. and Europe to the team,” Barclays President Robert D. Diamond Jr. said in a conference call with analysts, The Associated Press reported. “It would most typically be where Lehman has a strong position and BarCap (Barclays Capital) a weak position.”

• General Electric Co. (GE) and Google Inc. (GOOG) announced (Wednesday) they would jointly lobby for alternative energy. GE’s Jeffrey Immelt and Google’s Eric Schmidt said at a public event that the companies would team up on a “policy partnership” in Washington intended to promote “tomorrow’s power generation, transmission and distribution,” MarketWatch reported.

• Wachovia Corp. (WB) is considering a possible merger with Morgan Stanley (MS), one of the last two big independent brokerage firms. Morgan Stanley chief executive, John J. Mack, received a telephone call yesterday (Wednesday) from Wachovia expressing interest in the Wall Street investment bank, The New York Times reported. Wachovia declined to comment.

Source: Global Investing Roundups Thursday, September 18th, 2008