(Corrects reference to municipal funds as Franklin Resources
funds throughout story)
July 30 Franklin Resources Inc said on Wednesday
investors withdrew $400 million from its municipal bond funds in
the latest quarter, a trend that may continue in the short term
on worries over Puerto Rico's chronic fiscal woes.
Chief Executive Officer Gregory Johnson said ongoing worries
about Puerto Rico's ability to make good on its debt may
continue to hurt municipal bond flows at Franklin Resources in
the short term. His comments on a prerecorded call came as the
company released results for the fiscal third quarter ended June
The company's stock slid 3.3 percent in mid-day
Average assets under management in its tax-free bond
business, which includes U.S. municipal mutual funds with
exposure to Puerto Rico, declined 15 percent in the quarter
versus a year ago.
Its tax-free bond business started the latest quarter with
$70.1 billion in assets under management. But it had net new
outflows of $400 million as long-term redemptions of $2.4
billion outpaced sales of $2 billion.
Franklin Resources' funds alone have invested about $907
million in the Puerto Rico Electric Power Authority (PREPA),
which could benefit from a recently passed law that would allow
the agency to restructure its bond debt. That could hurt
bondholders, which are mostly U.S. mutual funds and
Franklin Resources' funds and OppenheimerFunds, which is a
unit of insurer MassMutual Financial Group, sued PREPA last
month in U.S. District Court in Puerto Rico. They want a federal
judge to declare that the commonwealth's recently passed Public
Corporation Debt Enforcement and Recovery Act violated the U.S.
Meanwhile, uninsured bonds issued by PREPA took a beating in
early July, spooking the $3.7 trillion U.S. municipal bond
market. The S&P Municipal Bond Puerto Rico Index is down 1.48
percent in July.
A PREPA bond with a 5.25 percent coupon maturing in 2019
, for example, traded this week at 48 cents on
the dollar. The yield on the bond, which moves inversely to
price, was nearly 24 percent.
Average tax-free bond assets were $71.1 billion at the end
of June, versus $83.3 billion a year ago.
Meanwhile, Franklin Resources reported that quarterly net
income rose to $579 million, or 92 cents a share, from $552
million, or 86 cents, a year ago.
Overall, average assets under management at the company
increased 8 percent to $903 billion.
Shares fell $1.90 to $55.20 on the New York Stock Exchange.
(Reporting by Tim McLaughlin; Editing by Jeffrey Benkoe)