Thursday, August 09, 2007

Containment Spreads to Europe

by Tanta on 8/09/2007 07:49:00 AM

From Bloomberg:

Aug. 9 (Bloomberg) -- The European Central Bank said it will launch an unlimited fine-tuning operation today to add liquidity at 4 percent after demand for cash in the European money market drove interest rates higher. . . .

Money-market traders are reporting a reluctance to lend money after concern over U.S. subprime mortgage losses roiled credit markets. That pushed overnight rates to as high as 4.7 percent today, compared with the ECB's benchmark refinancing rate of 4 percent.

``The underlying issue here reverts back to something we have mentioned before in that no one really knows how big the current credit problems are,'' said Charles Diebel, head of European rate strategy at Nomura International Plc in London in a note e-mailed after the ECB announced it's liquidity providing operation. ``This is undermining confidence in the system as a whole and hence the reaction this morning.''

BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds today because it couldn't ``fairly'' value their holdings. BNP 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 ($188 million) on U.S. subprime investments this year.

``There is a lot of uncertainty in the market about the subprime crisis and which banks may be affected by it,'' said Ina Steinke, a money-market trader at NordLB in Hannover. She added that overnight rates have fallen back to around 4.25 percent. ``Every bank is being suspected now, so no one is willing to lend money to anyone.''