The markets just can’t seem to shake the pervasiveness of subprime mortgages, as the credit market continues to tighten in response to further potential losses. According to their website, BNP Paribas is suspending 3 of its funds, citing the inability to calculate a reliable Net Asset Value. Per the company press release, a lack of liquidity is having a spillover effect which impacts even creditworthy securities:
“The complete evaporation of liquidity in certain market segments of the US securitisation market has made it impossible to value certain assets fairly regardless of their quality or credit rating. The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above-mentioned funds. We are therefore unable to calculate a reliable net asset value (“NAV”) for the funds.”
However, total losses due to US subprime mortgages are estimated to be less than 200 billion. Given the current market capitalization of US stocks, this would only be an impact of around 1.5% (which is relatively small). Still, the resulting tightening of credit standards could do even more damage, which has investors concerned today. Futures are pointing to a lower open as Wall Street digests information, as well as relatively weak July retail sales data.
Related Links: