Who’s next? That was the question we considered on Wednesday when it came to fears of a subprime domino effect on Europe’s investors.
And we didn’t have to wait long for the answer.
French bank BNP Paribas on Thursday said it would “temporarily suspend” three of its funds investing in asset-backed securities. The Parvest Dynamic ABS fund, the BNP Paribas ABS Euribor and the BNP Paribas ABS Eonia funds are the three vehicles affected. According to Bloomberg, the three funds had about €2bn ($2.8bn) of assets on July 27, including €700m in exposure to US subprime 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 said. “The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above-mentioned funds.”
In order to protect the interests and ensure the equal treatment of our investors, during these exceptional times, BNP Paribas Investment Partners has decided to temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions.
So much for soothing words. BNP earlier this month reassured investors that its exposure to the subprime mortgage sector in the US was “negligible.” Though that, as Frankfurt Trust demonstrated earlier this week, is not sufficient to avoid the wider subprime fallout.
BNP said on Thursday that the action had been taken in “strict compliance with regulations” for the funds and that the valuation, and redemptions, would resume as soon as liquidity returns to the market. Shares in the French bank fell almost 3 per cent in morning trade.
First question for BNP when we can put it to them: what is the difference between an unfair valuation, and a valuation you just don’t like the look of?
Article Series - Subprime and Europe
- 1 - Who's next?
- 2 - The next victim is... French
- 3 - Fallout hits the Netherlands