Posted on 08/07/2007 9:15:07 PM PDT by TigerLikesRooster
Subprime crisis claims another German victim
Published: Wednesday, 8 August, 2007, 02:49 AM Doha Time
FRANKFURT: The stricken US subprime mortgage market showed fresh potential to suck in other investors when another German asset manager froze a fund yesterday, blaming a crisis triggered by the risky US mortgages temporarily closed a 235mn-euro asset-backed securities (ABS) fund after seeing what it said was a sharp fall in its value - 2.4% - over the past week.
The development is significant because it is the second fund manager to come unstuck even though it had not invested in subprime assets.
The fund does, however, own securitised assets and so has an exposure to the credit markets, which have come under pressure in the wake of the subprime mortgage collapse.
“The problem is that the subprime crisis has caused a liquidity crisis,” Uwe Fuiten, a senior manager at WestLB Mellon, said.
“So we can’t get a fair price for our investment.” The announcement comes just days after German small-company lender IKB became Europe’s highest-profile casualty of the subprime crisis, sending shock waves through the country’s banking system.
But while IKB was directly invested in subprime, that crisis has sparked a domino reaction, Earlier this week, Frankfurt-Trust shut one of its ABS funds to stop panicking investors withdrawing any more cash. Despite not having any subprime investments, it came under pressure after many worried investors demanded their money back.
Default rates on mortgages to high-risk, or subprime, borrowers in the US have been creeping up, leading to problems for lending banks as well as those sharing the risk.
It has also spilled into credit markets, where banks and others buy and sell debt.
Last week, German banks clubbed together to bankroll a 3.5bn-euro ($4.83bn) rescue to cover IKB’s potential losses and stem what financial regulator Bafin warned could snowball into the biggest banking crisis in Germany in more than 75 years.
The banks backing the IKB rescue expect it to lose up to a fifth of its roughly $24bn subprime investment. The scale of the problem, which followed IKB’s assurances that it would barely be affected by property difficulties in the US, has prompted the head of the German central bank to call repeatedly for calm in the market. – Reuters
A rather large percent of the most “toxic” of the CDOs ended up in German hands.
jas3
But Benanke and Paulson said the subprime mess was contained.
Next stop - UK...where all the mortgages are variables.
Interesting. Looks like it is headed down a slippery slope.
Interesting. Looks like it is headed down a slippery slope. A lot of good people could be hurt by this.
AHM which is an American mortgage company has gone bankrupt, even though it did vey little subprime business.
“Paulson has been cheer-leading too much. It has always worried me.”
What do you think his job is? This time they got a guy with credibility and genuine knowledge but he is still meant to be a cheerleader.
Bookmark
If one is going to get worried every time a E235M fund gets into trouble, one is going to have a hard life. This “crisis” is a crisis of confidence. The fund lost 2.4 percent of its value and it is in “crisis”? Half of all traded funds lost that much on Friday and they aren’t in “crisis.” They all made that much back on Monday. If you blinked, you missed it. Foreign investors have taken a huge amount of the riskiest portions of ABS, but that risk is off the balance sheets of U.S. banks and other mortgage lenders. If those foreign investors mispriced that risk (and all evidence points in that direction), they will bear the consequences.
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