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BNP to reopen frozen funds in sub-prime mess

Paris – FRENCH banking giant BNP Paribas has said it plans to unblock three of its investment funds, whose suspension earlier in the month sparked turmoil on global stock markets.

On Aug 7, BNP Paribas suspended the funds, which had made investments linked to risky sub-prime home loans in the United States, because of difficulties in valuing them.

In a statement on Thursday, the bank said ‘conditions had been met’ for valuing them, and that the funds would be unblocked on Tuesday and Thursday.

‘BNP Paribas Investment Partners has drawn up a methodology allowing, as it committed itself at the outset to do, to resume the process of subscriptions and redemptions,’ the subsidiary said.

The funds – BNP Paribas ABS Euribor and BNP Paribas ABS Eonia – will be unblocked on Tuesday, while Parvest Dynamic ABS will be unfrozen on Thursday.

The funds hold asset-backed securities – complicated financial instruments that are linked to sub-prime borrowers with poor credit histories in the US.

Defaults by these borrowers have led to losses for many banks and investment funds, and appetite for assetbacked securities linked to sub-prime loans has dried up.

This led BNP Paribas to declare a total lack of liquidity in the market for asset-backed securities, which meant it was impossible to value the assets.

BNP Paribas said it expected the value of ABS Euribor to be 2 per cent to 3 per cent lower compared to its value on Aug 7. ABS Eonia is seen down by 2.5 per cent to 3.5 per cent, while Parvest Dynamic ABS is seen down between 4 per cent and 5 per cent.

The estimated value of the total assets under management by the funds had dropped between July 27 and Aug 7 from around two billion euros (S$4.1 billion) to 1.6 billion euros partly due to withdrawals by investors.

BNP Paribas chief executive Beaudoin Prot told a French newspaper it was too early to assess the impact of the US sub-prime market crisis on BNP Paribas accounts, but that the decision to freeze and then reopen the funds underlined its prudent investment approach.

Source: AGENCE FRANCE-PRESSE, REUTERS (The Straits Times 25 Aug 07)

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