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BNP suspends 3 funds with sub-prime assets

It says US crisis has made it impossible to gauge fairly the value of their assets

PARIS – FRENCH bank BNP Paribas has suspended three of its funds as problems in the United States subprime mortgage sector are preventing it from calculating their value.

BNP Paribas, France’s second-largest bank, will temporarily suspend the calculation of net asset value for the funds, which are called Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia, the Paris based company said in an e-mailed statement on Thursday.

The French bank follows Union Investment Management and Frankfurt Trust in stopping redemptions from such funds.

Late payments on US sub-prime mortgages to borrowers with poor credit histories have reached their highest level since 2002, driving down the value of bonds backed by home loans.

The BNP Paribas funds had about two billion euros (S$4 billion) worth of assets as at July 27, including 700 million euros in US sub-prime mortgages rated ‘AA’ or higher.

‘The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly, regardless of their quality or credit rating,’ BNP Paribas said in the statement.

When the company reported a 20 per cent increase in second-quarter net income last week, chief executive Baudouin Prot said the bank’s exposure to the US sub-prime meltdown was ‘absolutely negligible’.

Union Investment, Germany’s third-largest mutual fund manager, stopped redemptions from one of its funds last Friday after investors pulled about 10 per cent of the assets.

Frankfurt Trust, the mutual fund manager of Germany’s BHF-Bank, did likewise after after withdrawals surged, with clients withdrawing 20 per cent of their money since the end of last month. The ABS Euribor fund’s assets dropped 18 per cent to 850 million euros between July 24 and Aug 7, according to data compiled by Bloomberg. The ABS Eonia fund’s total assets dropped 7 per cent to 73 million euros over the same period.

Euribor, or the Euro interbank offered rate, is an interest rate that measures how much Europe’s biggest banks charge to lend each other euros. Eonia is an index that measures inflation in the countries that use the euro.

Sub-prime mortgages are the riskiest property loans, often extended to people who have payment difficulties or a bad credit history.

Several major US companies have announced losses from exposure to these sub-prime loans, sending jitters across the financial services sector.

Source: Straits Times 10 Aug 07

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