Money Wise

U.S. subprime mortgage crisis spread to Europe.


Overnight Dollar Libor Gains to Highest Since 2001 (Update4)

By Gavin Finch

Aug. 10 (Bloomberg) -- The overnight lending rate banks charge each other for dollars rose to the highest since January 2001, according to the British Bankers Association, as the U.S. subprime mortgage crisis spread to Europe.

The London interbank offered rate climbed to 5.96 percent from 5.86 percent yesterday, when it gained more than half a percentage point, the most in at least six years.

Central banks around the world are pumping cash into money markets on concern losses on subprime mortgages will trigger a global credit crunch. The Federal Reserve loaned $19 billion in temporary funds to the banking system today, after adding $24 billion yesterday.

``The market is starting to get dysfunctional,'' said Andrew Bosomworth, a portfolio manager in Munich at Pacific Investment Management Co., which oversees the world's biggest bond fund. ``There's talk of more banks under pressure.''

Pimco, based in Newport Beach, California, is owned by Allianz SE.

The European Central Bank loaned 61.05 billion euros ($83.6 billion) to banks today after yesterday injecting 94.8 billion euros, the most ever. The ECB said it would continue to ``closely monitor'' the conditions on the euro money market in response to a sudden demand for cash.

The New York Fed's loans lowered the Federal funds rate to 5.375 percent, according to ICAP Plc, after it began trading at 6 percent, the highest opening rate since January 2001. The Fed's benchmark overnight rate is currently 5.25 percent.

Fed Funds Open

``This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market,'' the Frankfurt-based ECB said in a statement today.

Three-month dollar Libor rose to 5.58 percent from 5.5 percent, the BBA said. The three-month euro interbank offered rate rose to 4.45 percent today from 4.41 percent yesterday.

Deutsche Bank AG's DWS unit, Germany's biggest mutual fund company, said today the value of one of its investment funds has fallen 30 percent since the end of July.

BNP Paribas SA, France's biggest bank, yesterday said it was halting withdrawals from three funds.

To contact the reporter on this story: Gavin Finch in London at

Last Updated: August 10, 2007 09:36 EDT

BNP Paribas Freezes Funds as Loan Losses Roil Markets (Update5)

By Sebastian Boyd

Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds because it couldn't ``fairly'' value their holdings after U.S. subprime mortgage losses roiled credit markets.

The funds had about 1.6 billion euros ($2.2 billion) of assets on Aug. 7, after declining 20 percent in less than two weeks, spokesman Jonathan Mullen said today. 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.

BNP's announcement sent its shares down 3.4 percent, pulled the benchmark European stock index lower by 1.9 percent, and helped U.S. 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.

``There are securities which simply can't be priced because there is no trading in them,'' Timothy Ghriskey, chief investment officer at Solaris Asset Management LLC in Bedford Hills, New York, said in an interview today. ``There are no bids for them. Asset-backed securities, mortgage loans, especially subprime loans, don't have any buyers.''

The French bank joins Bear Stearns Cos. and Union Investment Management GmbH in stopping fund redemptions. Dutch investment bank NIBC Holding NV said today that it lost at least 137 million euros on U.S. subprime investments this year.

BNP Paribas shares fell as much as 6.4 percent, and closed 2.88 euros lower at 82.57 euros in Paris, valuing the bank at 77.3 billion euros. The stock is little changed this year.

Losing Value

``The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,'' BNP Paribas said in a statement.

The European Central Bank today pumped 95 billion euros into the overnight lending market in an unprecedented response to a sudden demand for cash from banks roiled by the subprime collapse.

BNP Paribas's Chief Executive Officer Baudouin Prot said the bank's exposure to U.S. subprime was ``absolutely negligible'' when the company reported a 20 percent increase in second-quarter net income last week. BNP Paribas Investment Partners oversees about 356 billion euros.

``On BNP's scale this isn't too significant,'' said Benoit de Broissia, an analyst at Richelieu Finance in Paris. ``It will impact clients. It's more of an image problem.''

The three funds are Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia.

`No Prices'

The Hague-based NIBC, which is owned by a group including J.C. Flowers & Co., said ``severe instability'' in U.S. credit markets reduced the value of its U.S. asset-backed securities. The company expects ``further mark-to-market losses.''

Union Investment, Germany's No. 3 mutual fund manager, stopped withdrawals from one of its funds on Aug. 3 after investors pulled about 10 percent of the assets. Frankfurt Trust, the mutual fund manager of Germany's BHF-Bank, halted redemptions from a fund after clients removed 20 percent of their money since the end of July.

Two hedge funds run by New York-based Bear Stearns filed for bankruptcy protection in the Cayman Islands on July 31 following subprime losses. The New York-based securities firm then blocked investors from withdrawing money from a third fund.

``For some of the securities there are just no prices,'' Alain Papiasse, head of BNP Paribas's asset management and services division, said in an interview. ``As there are no prices, we can't calculate the value of the funds.''

Blocking Withdrawals

The 10 largest holdings of the BNP Paribas ABS Euribor fund on March 29 included bonds backed by U.S. mortgages to good- credit borrowers who could pay some interest by increasing their balances, and securities backed by U.S. subprime mortgages and risky U.K. home loans. Other holdings included debt backed by commercial properties in Singapore and U.K. credit-card receivables, according to information compiled by Bloomberg.

Traders are reluctant to bid on securities backed by risky mortgages because they are difficult to sell on, making it hard for asset managers to value assets held in some funds. With no valuation, investors can't buy or sell units of the funds because they don't know what they're worth.

Blocking investors from withdrawals ``was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris. ``If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''

Reymond doesn't hold any BNP Paribas stock, he said.

The funds had assets valued at about 2 billion euros on July 27, with 700 million euros in subprime-related investments.

To contact the reporter on this story: Sebastian Boyd in London at

Last Updated: August 9, 2007 12:25 EDT