December 12, 2008 / 12:14 PM / in 11 years

UPDATE 1-JP Morgan cuts Federated Investors to underweight

Dec 12 (Reuters) - J.P. Morgan Securities downgraded Federated Investors Inc (FII.N) to “underweight” from “neutral,” saying the impact of a zero interest rate environment will hurt fees and revenue for the U.S. asset manager.

J.P. Morgan analysts expect the Federal Reserve to lower its policy rate to zero percent by January in its attempt to avert a prolonged recession and to revive the struggling credit market.

A zero interest rate environment will be particularly harmful to the profitability of the money market fund business, and fee waivers will become standard on most money market funds, the brokerage said.

The brokerage also sees the likelihood of meaningful redemptions when rates fall to lower levels.

With money funds representing 85 percent of Federated’s assets under management, a zero interest rate environment would have a particularly negative impact on its revenue, the brokerage said.

It cut its 2009 profit view for the company to $1.65 from $2.00 a share.

Shares of Federated closed at $21.18 Thursday on the New York Stock Exchange. (Reporting by Amiteshwar Singh in Bangalore; Editing by Deepak Kannan)

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