BOSTON — At least 36 money-market mutual funds were at risk of failing during the financial crisis, besides one that did end up collapsing, Moody’s Investors Service said Tuesday.

The report shows how shaky the nearly $3 trillion money-fund industry was after Leh-man Brothers’ September 2008 collapse.

Around the time that a soured Lehman investment triggered the demise of the $64 billion Reserve Primary Fund, Moody’s says at least 36 other U.S. money funds were also at risk of “breaking the buck” — failing to ensure clients could get back at least a dollar for each dollar they put in.

But investors avoided losses because at least 20 companies spent billions to prop up their funds, Moody’s said. Support included purchasing the soured investments that put the funds at risk, funneling company money directly into the fund, or securing a letter of credit.

Moody’s also found 26 European money funds that were endangered. All told, companies with U.S. and European funds that were at risk spent about $12.1 billion, before taxes, to prop them up, Moody’s found.

Damage to the normally safe-harbor investments from the financial crisis “was unlike any experienced during their previous almost 36 years of operation,” said Henry Shilling, a Moody’s vice president who wrote the report.

Money funds put clients’ cash to work by investing in short-term debt and other safe investments. Returns are typically small, since money funds are designed to be safe harbors where investors can temporarily park cash and quickly access it when needed.

A researcher with another firm tracking the money-fund industry, Peter Crane of Crane Data, said fund companies typically have systems in place to quickly rescue a fund if one investment in its portfolio sours, and the value of the fund’s assets is in danger of sinking below the $1-per-share safety benchmark. So it’s unlikely many of the 36 funds that Moody’s cited would have ultimately broken the buck, he said.

“It was bad, but this makes it seem a lot worse than it really was,” said Crane, publisher of the newsletter Money Fund Intelligence.

 

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