BNP to Reopen Frozen Funds in Subprime Blizzard
BNP Paribas said on Thursday it would reopen next week three investment funds it had frozen this month amid subprime volatility in a step that may help restore investor confidence, which took a hit on their suspension.
Chief Executive Beaudoin Prot told a French newspaper it was too early to assess the impact of the U.S. subprime market crisis on BNP Paribas accounts, but that the decision to freeze and then reopen the funds underlined its prudent investment approach.
But he added in the interview, to be published on Friday in Les Echos, that he expected France's biggest listed bank to have a good performance relative to other banks.
He said the subprime crisis highlighted the fact that many buffers in financial markets -- due to various intermediaries between market segments -- had disappeared. This was due to the rise of both new securitisation products, which parcel risks from one market into another, and new players such as hedge funds, which move with lightning speed to take account of pricing differences between market segments or regions.
On Aug. 9, BNP Paribas said it had frozen three funds holding about 1.6 billion euros ($2.2 billion) following problems in the U.S. subprime mortgage sector, a move which added to turmoil in global financial markets.
"Since this decision and in the face of difficulties to obtain, in certain segments, market prices, BNP Paribas Investment Partners has developed a methodology allowing, which it had planned originally, to reopen the process of subscriptions and buy-backs," BNP said in a statement.
The BNP Paribas ABS Euribor and BNP ABS Eonia funds will resume on Aug. 28, followed by Luxembourg-listed Parvest Dynamic ABS on Aug. 30.
Reuters reported on Tuesday that BNP planned to re-open the funds before the end of August.
The funds had a combined value on Aug. 7, their last day of normal operation, of 1.593 billion euros, down from 2.075 billion as of July 27.
Fund Prices Seen Down
BNP said it expected the value of ABS Euribor to be 2% percent to 3% lower compared to Aug. 7. ABS Eonia is seen down by 2.5% to 3.5%, while Parvest Dynamic ABS is seen down between 4% and 5%.
But the bank added that due to market developments, these estimates could change between now and their resumption.
BNP Paribas Investment Partners said the three were, on average, more than 90% invested in AAA and AA notes which have not suffered from rating downgrades or payment difficulties. Their price discounts stem from market illiquidity, it added.
"This specific context gives new investors the opportunity to benefit from the discount of the assets by subscribing to the funds, and to current holders to remain invested," it said.
French Economy Minister Christine Lagarde met Prot on Aug. 17 to discuss the issue and said she had received reassurances from him about reopening the funds.
"This crisis is without precedent," Prot told Les Echos. "It has put the spotlight on the evolution in the financial industry and the growing weight of disintermediation."