FRANKFURT -- The stricken U.S. subprime mortgage market showed fresh potential to suck in other investors when another German asset manager froze a fund on Tuesday, blaming a crisis triggered by the risky U.S. mortgages.
WestLB Mellon temporarily closed a 235-million-euro asset-backed securities (ABS) fund after seeing what it said was a sharp fall in its value — 2.4 percent — 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.
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"The problem is that the subprime crisis has caused a liquidity crisis," Uwe Fuiten, a senior manager at WestLB Mellon, told Reuters. "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 United States 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 3.5 billion euro ($4.83 billion) 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 $24 billion subprime investment.
The scale of the problem, which followed IKB's assurances that it would barely be affected by property difficulties in the United States, has prompted the head of the German central bank to call repeatedly for calm in the market.
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