France's Biggest Bank Halts Run on 3 Hedge Funds

France's Biggest, Bank BNP Paribas, Answer's the Question, "Liquidity Crisis? What Liquidity Crisis?"

“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

Rock Trueblood's Watchworld Adds the New "Hedge Fund Implode-O-Meter" to Its Links You Can Use

So I am waking up and I haven't even had my coffee and Bloomberg TV has talking heads talking about the 2.59% drop on the French Bourse of stocks because of the the BNP Paribas freeze of 3 of their managed hedge funds.

And I ask the TV, "WTF?"

So, playing catch up, I run to Bloomberg News on the net to get the story:

BNP Paribas Freezes Funds as Loan Losses Roil Markets

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 as much as 5.5 percent, pulled the benchmark European stock index lower by more than 2 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.

``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 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.

No Surprise Here the Blow Up Has Moved Overseas

Our biggest Wall Street Banks sold the world on buying our risky Mortgage Backed Securities and Collateralized Debt Obligations. And now we have the biggest bank in France telling shareholders of 3 Hedge Funds that they can no longer liquidate their holdings. Yep, the world learned from the US, "You too can set up your own hedge funds with 10 or 15 times the leverage you'd get in a regular margin trading account and reap the same rewards."

The US Federal Reserve's Ben Bernanke just a few months ago . . . with his brethern from Wall Street's biggest banks . . . were assuring us that the "sub-Prime mess" was contained.

And then last month we had three Bear Stearns hedge funds stop paying out funds to investors trying to liquidate their holdings. In one fund alone, the hedge directors racked up 57% losses in the first month of Summer. With "Smart Money" management such as this, does it ever occurr to wealthy folks they could do better on their own?

"More of an image problem"

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 deBroissia, 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.

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."

So, what BNP Paribas told you last week about US sub-Prime not affecting their bottom line? Forget that. That was last week which is a really long time ago.

"Relax, Wealthy People, your money is safe with us. If you want your money back at any time, we'll call a meeting and ask everyone what they think your investment is now worth.

Keep dreaming, Mr. Trueblood. The sharks on Wall Street have already re-deployed that money as bonuses to buy expensive cars, vacations, homes, jewelry. You can't take candy from a baby who ate it all.

This "mark to market" crap is simply an admission that, "We don't know what your original investment is worth today, so, we must stop you from further attempts to liquidate so we can save you from yourselves."

What they are really saying is, "We can't afford a run on our bank which would put us out of business."

Crack Cocaine Accounting in the Ponzi Economy

More from the Bloomberg . . . just so you know I'm not making up the following:

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.''

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.

Wow. Another Hedgie admits to his dysfunctional business with that line you got to love, ``As there are no prices, we can't calculate the value of the funds.''

Yep, I don't know about you, but I got to have me some of that hedge fund action where real values are unknown and where for every $1000 bet, you can lose up to $15,000 or more.

Smack me for not "getting" how "Smart Money" thought Hedge Funds are virtually risk free when there is no SEC or comparable government Policeman keeping the Crack Cocaine Accountants at hedge funds honest.

Your Last Caveat Emptor and Understatement of the Day

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.

Ha. Good thing I haven't made the coffee. I'd be spitting it out on the computer screen.

p.s. Please click on the new Implode-O-Meter-Hedge Funds link on the right hand side margin of this blog to follow the hedge fund blow ups. By the way, the Implode-O-Meter-Lenders link shows 114 USA lenders have now gone the way of tumbleweeds in a hurricane.

Meanwhile, as Hedge Funds begin to blow up and as Housing continues to crash, President Bush is telling the sheeple losing homes and money "America's economy is the envy of the world!!!"

Okay, count the President as our last Caveat Emptor of the day.

DJ Rock . . . Power Shields Down