Looking past the headlines
What’s Federated’s position on the European bank exposure?
We continue to use what I’ll call global banks, that are headquartered in the European landscape. We use them in all of our portfolios in a way that we continuously assess the qualitative and quantitative basis of their health. We look at keeping the maturities at this point a little bit shorter than we have historically, but I really don’t see us removing any issuers from the list. We are looking at it from a top down basis where we review the analysis of the country’s health, and then once we’re comfortable, we look at the overall assessment of the banks themselves. And in that current scheme of managing the European risk within the portfolios it entails keeping our maturities fairly short so that we’ll have a continual sense of reassessment and whether or not we want to use those securities on a regular basis, which at this point we don’t see a reason why that won’t continue.
How do you distill headline risk from real risk?
Real risk is easier to assess and it’s much more quantitatively derived. So we’re looking at ratio analysis, the health of institutions, how financially capable they are of repaying their debt on a regular and timely basis. When we look at headline risk however, it’s much more qualitatively assessed. It’s something that has more emotion associated with it, so therefore less easy to predict and deal with on a day to day basis. Over the course of the last year and a half or so there has been increased disclosure as part of the rule changes that occurred in the 2010 amendments to rule 2a7. The increased disclosure that we’ve been providing to our customers has been helpful in making them comfortable with headline risk. We now produce monthly portfolios with more detailed information. We provide this not only to our customers but to the SEC, which I think helps dispel some of the concerns that headline risk generally evokes for customers on an emotional basis.
