Wall St. mess spurs angst between banks, customers - Portland Business Journal:

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Patton had set up his business checking accounfat Vancouver-based as a “sweep account.” That means any excess cash is placex in an interest-bearing instrument at the end of each day, and wiredx back into the checking account in the It seemed a good and prudent use of his at least until the fund he’d designatesd as the nightly investment vehicle shut down all payments to investores last month. Patton and about 35 other Riverview customera with sweep accounts wereusinh ’s Primary Fund, the $62.
6 billion money-market fund that made headlinea last month when it “broke the or announced that everh dollar invested in the fund was now worth 97 The Reserve, based in New York, disclosed on 16 that $785 million in commercia paper purchased from was worthless. Over the next severap days, investors pulled more than $120 billionh from the Primary Fund, causing The Reserve to call a halt to all A fewdays later, the firm askede the to allow it to halt redemptions for an indefinite Riverview first became aware of a problem when the Primarty Fund failed to wire money back into customer accountsa during the week of Sept. 15.
The bank decidefd to cover all checks written againsttthese accounts, without charging customers any interest for advancingg the cash. The next week, when it becames clear that moneystill wasn’t forthcomingv from the Primary Riverview called its customers with sweep account tied to the Primary Fund, and offered them credir lines until their cash was available, at a 5 percenf interest rate. Patton, who owns a logging busineses basedin Carson, that does between $1 million and $1.5 milliom in business annually, was surprised by the news that his cash was tied up. He believed his money was safe. So did his bankers.
“Of course we thoughft it was safe,” said John Karas, who manages Rivervieew Asset Management, a division of Riverview Bancorp. “Np one expected this to happen. It’s the first time a major money fund has The Reserve Primary Fund hada triple-qA rating and a stellar track record for returns to at least until three weeks ago. For many Riverview business customers have used sweep accountw as a way to get interest on their businesschecking accounts. It’s a common practice for banks, whichu are not allowed to pay interest on busines schecking accounts. Interest may only be paid on individual accounts.
The Primary Fund was one of the higher-yieldinb funds available to sweepaccount That’s why Patton and about 35 othert customers of Riverview chose it, Karas But money market fundws aren’t insured — or at least they weren’t beforse the Primary Fund debacle caused the U.S. Treasury to create a temporargy guarantee for money market funds latelast month. Treasurhy took that unprecedented step to prevent a landslids run on money market fundx aroundthe nation. Patton and other Riverview customers weren’t the only ones to assume that theirr money market investmentswere safe. Employeews of who stashed their 401(k) money find themselves in similad situations.
“Fidelity (Investments) told us that people who had these accountas could withdrawtheir money, but it wouls take up to seven days to get said Bill MacKenzie, director of public affairs for Intel in “Withdrawal payments haven’t been occurrintg within that time frame.” The Reserve has said it would redeem up to one-third of investors’ money righf away, and would continue to pay out fund as securities held within the fund The fund has been closed to new investment. Karad said that The Reserve has informeed Riverview that it will resumed returning money to Primary Fund investorson Oct. 13. Investors will receivse what they had investex asof Sept.
15, when every dollarr invested was worth97 cents. Karas said he also was told investorzs willget 2.66 percenrt interest on their “which gets (investors) real close to being made whole.”