BNP Paribas SA, France’s biggest bank, halted withdrawals from three investment funds because it couldn’t ‘fairly’ value their holdings after US subprime mortgage losses roiled credit markets.
The funds had about 1.6 billion euros ($2.2 billion) of assets on August 7, after declining 20 per cent in less than two weeks, spokesman Jonathan Mullen said on Thursday. The bank will stop calculating a net asset value for the funds, which have about a third of their money in subprime securities rated AA or higher.
Investors shun bonds
BNP’s announcement pulled the benchmark European stock index lower by more than 2 per cent, and helped US treasuries rally for the first time in four days. Investors are shunning bonds backed by home loans after late mortgage payments by borrowers with poor credit histories rose to the highest since 2002.
“The complete evaporation of liquidity in certain market segments of US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating,” BNP Paribas said in a statement. The French bank joins Bear Stearns Cos and Union Investment Management GmbH in stopping fund redemptions. Dutch investment bank NIBC Holding NV said that it lost at least 137 million euros on US subprime investments this year.
Chief Executive Officer Baudouin Prot said the bank’s exposure to US subprime was “absolutely negligible” when the company reported a 20 per cent increase in second-quarter net income last week. BNP Paribas Investment Partners oversees about 356 billion euros.
The news sent shivers through global markets already nervous that troubles in US mortgages would spread globally, hitting banks and broader financial system. Investors rushed to buy safe-haven bonds and low-yielding yen to preserve capital.
Overnight euro and dollar deposit rates hit six-year peaks at one point with concerns growing there could be more subprime-related problems from financial institutions. Rates fell after ECB injected liquidity in the market.
In the past few weeks, global financial market has been jolted by repricing of risks and volatility in credit markets.
This could hit corporate earnings and merger activity, force consumers to cut back spending and damage the otherwise robust global economy.
