BNP Paribas suspends three of its funds blaming US market crisis

Paris-based bank BNP Paribas announced on Thursday it has closed three of its asset-backed securities funds because of 'the complete evaporation of liquidity' in the market. The French lender claimed that the US securisation market 'has made it impossible to value fairly certain assets' and added that the valuation will 'resume as soon as liquidity returns to the market'. French newspaper Les Echos reported that the funds shed 23% of their value from July 27 to August 7, falling to some EUR 1.6 bn.

This week two other German fund managers were hit by the US subprime mortgage crisis, and fears are growing that the liquidity crisis in the US will lead to a domino reaction in Europe. WestLB Mellon, a US-German bank, froze one of its fund on Tuesday, blaming the lack of liquidity in the market. The asset manager closed a EUR 235 mln asset-backed securities fund after it saw a 'sharp fall' in its value over the last week. Uwe Fuiten, a senior manager at WestLB Mellon, said that the move came in the wake of the US credit turmoil, which made it impossible for investors to 'get a fair price for their investment.' On Monday, another German fund manager, Frankfurt Trust, said that it had closed a EUR 160 mln fund to stop investors from bailing out. In both cases neither of the two funds had invested in subprime assets, which seems to confirm concerns that the crisis is spreading to other sectors.

Until today, Germany was the only country in Europe to have been reached by the market troubles in the US. Last week, the country's third-largest mutual fund manager Union Investment Asset Management blocked redemptions from a fund after investors cashed in EUR 100 mln over the past month. The move directly followed IKB Deutsche Industriebank's announcement it had run into losses worth billions investing in financial instruments backed by tricky US property loans. IKB needed to be rescued by the nations' banking association as well as private banks and the state-owned KfW Group.

While it is still unclear whether the situation will reach other countries in Europe and lead to a systemic crisis, several financial media claimed that the instability in the market is affecting the way deals are structured. A string of companies close to sealing a deal said they have been asked for more guarantees and a more balanced debt-to-equity ratio due to less optimistic market prospects. The latest of these cases involves private equity group Delta Two's bid for Sainsbury's, in which they will probably be required to increase the equity element of their offer.

Last week several banks hastened to play down their exposure to subprime assets after seeing a plunge in their share prices. Commerzbank, French Natixis, Hypo Real Estate and ING said either they don't expect to be affected by the market turbulence or assured that their exposure to the market is limited.

Meanwhile, Axa Investment Managers, the Paris-based asset manager, decided to inject liquidity into two of its funds after they lost more than 20% of their value. Axa said it would put its own money in the funds while continuing to allow investors to sell their assets. The move indicates that Axa believes the market turbulence is just a 'temporary problem', after which the 'market will go back to normal.'