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Inst savers look beyond scam-hit banks

Corporate treasurers,pension funds and charities are seeking advice...

Written by Reuters | London | Published: July 31, 2012 1:17:50 am

Corporate treasurers,pension funds and charities are seeking advice on whether to quit banks engulfed by the recent welter of financial scams.

Institutional savers are nervous that banks may struggle to afford punishments doled out to those guilty of rigging interest rates,mis-selling products and performing inadequate checks against money laundering. Cost estimates on rate-rigging alone top $20 billion.

We’re already seeing an increase in inquiries from people who want guidance on how to spread their money across more names,said Tom Meade,investment director at Royal London Cash Management,a Royal London Asset Management division with 6 billion pounds ($9.4 billion) under management.

Historically,if a bank was seen as systemically important,like a Lloyds or an RBS,that used to be enough. But that point of view is changing,he added.

Many of the world’s biggest lenders are fighting to maintain the confidence of regulators and customers as ratings agencies cast doubts on their creditworthiness. However,these efforts have been undermined by revelations that bank staff conspired to rig the Libor interbank lending rate,which underpins transactions worth trillions of dollars.

Furthermore,several banks suspected of a role in fixing the euro interest rate known as Euribor are supplying regulators with information in hopes of receiving lower fines,two people familiar with the matter said on Monday.

Data shows that increasing amounts of wealth are starting to flow into alternative investments such as money market funds.

These highly liquid products invest clients’ cash in US Treasury Bills,UK gilts and across a range of short-dated paper issued by top-rated banks. They are commonly used as alternatives to bank deposits because their net asset value rarely dips below the sum of cash invested.

Global research house EPFR said that money market funds enjoyed their best week this year in the week to July 11,attracting nearly $18 billion — the week that Barclays’ chief executive resigned after admitting the bank’s role in Libor manipulation.

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