By now you’ve heard that BNP Paribas has suspended redemptions on three of its hedge funds, telling investors that problems in the US sub-prime mortgage sector have made it “impossible to value certain assets fairly.”
The funds had about 2 billion euros or $2.76 billion of assets. Or, you know, was pretty sure it did. Those assets included something like 700 million euros in securitized debt products rated AA or higher. But now it says that it has no idea what the assets might be worth. And, well, we’ve all learned that those debt ratings aren’t all they’re cracked up to be.
To make matters worse, the funds have ridiculous French names like Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia. We’re thinking of just calling them “Freedom Funds.”
“Remember those pictures from the Great Depression? The ones where the banks had to lock their doors because depositors were rioting to withdraw their savings. That’s what we’ve got right now,” one particularly morose money manager told DealBreaker.
Another described this morning as a “Rumsfeld moment.”
“There are known unknowns and unknown unknowns. And now we’re discovering there are a lot more unknown unknowns than anyone thought,” the manager said.
The announcement hit the European stock markets hard, and it’s putting huge downward pressuring on US equities futures. LIBOR leaped upward. US Treasuries shot up. The European Central Bank has already reacted by injecting Euros into the market and throwing the debt window wide open. The Fed is also throwing out some more money. No doubt central bankers hope that the move will hold off an even broader sell-off. But it may just further obscure asset valuation and create additional capital misallocation.
One factor that hasn’t been getting a lot of attention yet is the risk to counterparties. Depending on how much leverage the freedom funds employ, banks that have lent them money may now be facing a “collateral crunch”—a situation where they can’t evaluate their own risk because their clients have no idea what their assets are worth. This concern could hit many other hedge funds, as counter-parties attempt to manage their risk by re-evaluating collateral valuations.
-
Posted in:
Hedge Funds
It’s The End Of The World As We Know It
BNP Paribas Suspends Redemptions And Sets Off Panic
By John Carney
Comments (26)
Leave a comment
You can log in with your account or comment as a guest below.
“by know…”
Good work guys.
“by know…”
Good work guys.
Dammit!
Carney: “By know” and “and it putting”. Stop dictating your posts to Beth and write them out.
fuck you chris, bess never has errors.
My apologies.
What, no “sponsored by REM”?
Great sponsorship idea. Definitely the lyric of the day!
WestLB – Brightwater massive subprime and CDO exposure that has not been marked. German regulaters and ECB are freaking out after IKB
Let us all remember that VaR starts from the basic premise that one is doing nothing at all about risk.
Let us all remember that VaR starts from the basic premise that one is doing nothing at all about risk.
i’m a c-hair’s breadth away from suing bsc, ms, and gs prime brokers for punitive damages on the value of my PA since their damn hedge funds are effing up the whole market here, as a good hedge since i work at one of those damn hedge funds and we have only limited idea what our assets are worth as there is no market and we don’t even TOUCH mortgages!
Can you guys start purposely misspelling Goldman with Goldamn. It’s got a certain ring to it. Like when they announce that they’re shutting down Global Alpha because they’re down 20%, you say “The Goldamn Alpha Fund sh*t the bed today, Goldamn that’s a lot of money.”
“we have only limited idea what our assets are worth as there is no market and we don’t even TOUCH mortgages!”
irate, what other asset classes have no bid right now?
Widgets! Buy Widgets!
Well the Frogs are really making us look like even bigger geniuses with this f-up. Looks like we’ll have an even better August than we did in July, saweeeet!
These aren’t hedge funds, these are 2 French money market funds & 1 Luxembourg short-term bond fund.
Sweet concept….
http://invest.bnpparibas.com/en/news/default.asp?Code=NROU-69EB42EN
various loan classes from builders, brokers, some banks, almost any weaker corporate credit. auto and plastic ABS is practically a standstill, you can’t just move paper in size trading is by appointment only like i had a guy tell me he could try and work an order no promises on $20million of prime credit card ABS and the bid-ask spreads are attrocious,
even in investment grade credits (insurance subsidiary) we are getting back horrible prices that do not match.
on the plus side we have a fairly good idea how our equities portfolios are marking :)
oh also govvies still trading well
Seems Bill Poole opened the darn discount window
on the tape… highbridge down 5.3% this month, neg 3.3% for the year
Wait, you mean to tell me that hedge funds can lose money?
Honey, it’s time to take the kids out of Harvard – they’re going to Union County now!
Oh no you di’int….
Do NOT fuck with Owls.
‘the Owls’.
“We surrender. Signed, France.”