Paris: BNP Paribas SA, France’s largest bank by market value, announced on 9 August 2007 that one of its units was suspending three of its asset-backed securities funds, saying it could not value them accurately because of problems in the US subprime mortgage market.
The announcement by BNP Paribas Investment Partners sent further shock waves through an already sensitive money market.
The bank said it was suspending three funds worth a total of €2 billion (Rs11,125 crore): Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia. All funds combined at BNP Paribas Investment Partners are worth more than €350 billion.
“The complete evaporation of liquidity in certain market segments of the US 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 situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above-mentioned funds” and “therefore unable to calculate a reliable net asset value, NAV, for the funds,” the company said.
Defaults on subprime loans, or those made to people with poor credit, have climbed sharply in recent months and have triggered concern about the impact on credit markets worldwide. BNP’s announcement sent European stock markets lower and stirred concerns that problems among subprime borrowers would further roil markets.
“Who knows where the subprime story is going to pop up again,” said Adam Cole of RBC Capital Markets.
BNP Paribas shares dropped 3% to €82.81 in an overall weaker Paris market.
When the bank posted second-quarter results last week, chief executive Baudouin Prot said it would be virtually untouched by the plummeting valuation of some subprime mortgage portfolios in the US because it has little exposure to that market.
BNP’s actions come amid a panic period and the prices of assets remain volatile, said Celent analyst Cubillas Ding.