GERMANY - Shockwaves from the US sub-prime loan crisis have hit Germany and prompted three providers of asset-backed securities (ABS) to temporarily close their funds.

HSBC’s German arm, Frankfurt-Trust and Union Investment have all announced amid the current dearth of liquidity for ABS funds, they cannot not find a fair price for their products and have said they had no alternative other than to freeze them until further notice.

ABS funds from HSBC, Frankfurt-Trust and Union are all primarily targeted at institutional investors and invest in bonds backed by pools of assets, typically mortgage loans but also auto loans, credit cards and aircraft leases.

Union’s ABS fund closure is the biggest of the group as it has nearly €1bn in assets but is less than 6% invested in the US sub-prime loan segment, according to the manager.

The sub-prime sector has been showing signs of problems for several months now - HSBC’s US division was the first to reveal concerns - but was finally thrown into turmoil last month when several US financial firms announced they would have to write off billions of dollars worth of sub-prime loans.

According to Union, the turmoil was enough to cause €100m in investor outflows during July. “As you can see, we had no choice but to step in and protect the fund’s investors. If redemptions would have continued, they would have been done at wholly unfair prices,” a spokesman said.
 
Frankfurt-Trust’s ABS fund was 7% invested in the sub-prime loan segment of the US, said a spokesman for the manager.

As seen at Union, the Frankfurt-Trust spokesman said its ‘ABS-Plus’ product had been hit by outflows of €40m over the last two weeks, reducing the fund’s volume was now €140m. ABS-Plus’ volume is split evenly between retail and institutional investors.

That said, Frankfurt-Trust’s other ABS fund, called ‘ABS Institutional’, did not have to be shut down, added the spokesman, as investors had voluntarily agreed not to remove their €40m from the product.

HSBC’s German arm, meanwhile, said its €200m ABS fund, which is designed solely for institutional investors, was 4% invested in the US sub-prime loan segment.

“The temporary closure of the fund is for the security of its investors. The credit rating of the assets backing the fund (currently A-/BBB+) is also not endangered,” said Leonhard Fröhling, director of institutional business at HSBC’s German arm.
 
A spokeswoman for HSBC also told IPE prior to the fund closure, there had been no investor outflows.

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