Keeping watch on the public wealth
Imagine being responsible for nearly a half-billion dollars worth of the public’s money during a time that almost everyone has called the worst financial crisis to hit the nation in nearly eight decades — a reckless calamity that has generated fear, distrust, anger, panic, buyouts, prop-ups and falling stock prices for local banks.
So who is lucky enough to have that job? If you answered Kent County Treasurer Ken Parrish, you’ve earned another point on your investments.
Parrish is managing roughly $470 million in the county’s investment pool that contains more than 500 funds. Not all of that money belongs to the county, as townships and other groups such as the Grand Valley Metro Council have hitched their fortunes to the pool, but all of it belongs to the public.
Right now, Parrish said he has his eyes glued to market reports looking for hints of things that may be coming down the road, especially after Bauer Financial Inc. reported that 28 banks and credit unions in Michigan were facing serious problems.
Parrish does business with 24 area banks.
“We’re certainly watching all of the institutions very closely. Certainly, there are several that are in play, in terms of being mentioned as possibly being bought up by other banks and that sort of thing,” said Parrish.
“We’re struggling a little bit in terms of rebalancing, if you will, because there is such a flight to safety going on in the country right now that, essentially, if you want to invest in any sort of Treasury note or bond, you’re loaning your money to the government for free,” he added.
When the Business Journal spoke with Parrish last week, three-month U.S. Treasury notes were offering two basis points — what he called an “unheard of” interest rate that doesn’t cover inflationary costs, as demand for the government’s security has pushed the payout on the notes down to a record low.
“So at this point, we haven’t had any major shifts in our philosophy other than continuing to do our due diligence by watching things very closely and keeping our ears to the ground in terms of what we might hear. As we go forward, we will continue to do that,” he said.
Parrish added that panic hasn’t played a role in his decisions as that would be counter-productive to his mission.
“We’re trying to be thoughtful and keep our funds secure and not yank all of our money out of one bank or anything like that. We continue to invest accordingly,” he said.
The county’s investment philosophy, and official policy, is conservatively built around three objectives: safety, liquidity and yield — in that order. In the past, Parrish has said the county’s policy is more stringent than what the state law allows counties to do.
Parrish has nearly $300 million invested in money-market accounts and certificates of deposits and $6.5 million in cash deposits at local banks. He limits any investment he makes with a bank to 1 percent of its total assets, investing with 24 institutions.
“If there is trouble at any one particular bank, while I don’t anticipate us taking a hit but if it were to happen, it would only be at that one bank. We do spread it around for that very reason, so we are diversified,” he said.
The pool also has about $55 million in government securities, with $10 million of that total in Treasury bonds, notes and strips. Another $123 million is invested in pooled funds, with $117 million in a guaranteed investment contract with Bayerische GIC, a German bank. Most of those dollars came from the airport bonds, revenue the aeronautics board is using for the new parking ramp and renovations at the Gerald R. Ford International Airport.
None of the pooled funds are with investment banks or in commercial paper.
Parrish said what he will be keeping an eye out for in the very short term are the third-quarter reports that will be coming from area banks over the next few weeks.
“If we get bad news from that front, that certainly will be an area of concern. From everything that I’ve seen, all of the banks that we deal with — certainly all the larger banks in Michigan — are meeting the well-capitalized designation from the FDIC or the federal regulators, and that’s an area that we will continue to watch,” he said.
“We’re looking at each bank individually, looking at their numbers. Are they profitable? If they’re not, why not? Will they be? I’m real anxious to see what the third-quarter earnings reports will look like.”
Parrish added that a solid bailout/rescue package from Congress should restore some confidence to the financial markets and give banks more liquidity. He felt pretty comfortable that area banks will get through the current crisis and not fail. But if one or two do, he thought those would be acquired by other banks, and the deposits would remain secure.
“As far as I know, the only bank failure we’ve had this year where depositors have lost any money is IndyMac, and that was due in part to the run that was caused by (Sen.) Chuck Schumer (D-NY) proclaiming that we have to do something about IndyMac,” he said.
“In every other case that I’m aware of, including WaMu last week, while there was a bank failure, the regulators stepped in and either sold the bank or the assets of the company so the depositors were fully protected, and business went on as usual.”