Federated Investors, Inc. Class B FII
Q2 2012 Earnings Call Transcript

Operator: Ken Worthington, JPMorgan.

Kenneth Worthington - JPMorgan: Maybe first for Debbie, can you talk about how interest arm reserves would impact the money fund business if the Fed were to take that rate down, how does that flow through to your businesses, and then I guess equally it is important like what are your views is it something that you view as probable, neutral, unlikely. Thank you.

Deborah A. Cunningham - EVP, CIO, Taxable Money Markets, and Senior Portfolio Manager: Sure, IOER let's talk with the second part of that first. I think that it is the last tool it seems like at this point that Chairman Bernanke would want to invoke as a means of continued easing in the economy. Certainly when addressing Congress last week it was only I think the third time he was asked that he actually even brought it into consideration. So I don’t think it's one of the top ideas that he would use at this point, certainly further Operation Twist as well as QE3 seem to be in the queue above that. Having said that we are certainly sort of watching what might happen in the U.S. money market play out currently in the euro denominated money markets. Now granted that's a much smaller sector and its playing out mostly in the context of the euro government funds, whereby so the ECB lowered their rates to zero, their deposit rates to zero and as such banks are finding themselves right around the zero rate because they can longer place paper with the ECB and earn that 25 basis point spread. They are also in some instances posting negative rates which although I don’t think the market's actually buying negative rates from banks in the euro market place at this point. And that just has to do with their operational costs that are associated even with having those outstanding deposits and certainly when you look at then the spread for sovereign financing, short-term sovereign financing, the European sovereigns that are funding themselves in euros are posting also negative rates, so presumably that same sort of situation would occur if in fact the IOER went to zero here in the U.S. What I think though will happen again -- continue to be able to watch unfold is that the reason that its taking place, the reason that they lowered the rates to zero is so that easily able for as the banks get cheaper funding there are able to then go out and spur loans in the economy, make loans into the economy and spur growth with those loans. If in fact those loans aren’t being made because nobody has funding at the zero or slightly negative rates for the bank, its adversely having an effect but the little bit opposite as to what the ECB might have initially indented. What needs to happens is some sort of equilibrium rate start to evolve that keep money market participants happy that they are funding the bank at certain positive level which will create a little bit more supply than for the loan market for those bank to actually go out and actually help move growth forward from an economic perspective. It’s a supply and demand issues at this point and I think although we’ve had supply and demand imbalances here in the U.S. that have resulted in negative treasury rate, I think they were much more temporary than what we are seeing here in the ECB version of this zero interest rate environment. Having said that I think it will still be a temporary event, but one that takes a little bit longer on a temporary basis to actually work itself into an equilibrium expense for overall money market participants in total.