Macquarie flags losses at two funds on subprime woes
SYDNEY (Reuters) - Australia's Macquarie Bank MBL.AX warned on Wednesday that retail investors in two debt funds face losses of up to 25 percent as fallout from the global credit crunch widened, knocking 10 percent off its shares.
Macquarie, known locally as the millionaire's factory for its big bonuses to staff, is the third Australian institution to flag possible losses as spooked investors have marked down the value of credit assets, with potential losses magnified by borrowings.
Analysts said other highly geared funds invested in potentially illiquid assets could face losses if the slide in valuations continues and lenders demand asset sales.
"Even the ones with less leverage are going to get to the stage where they are going to be forced sellers and it becomes a spiral," said Tony FitzGerald, co-head of Global Fixed Interest and Credit at fund manager Colonial First State.
The warning rattled investors in Asia, where the MSCI Asia-Pacific ex-Japan index .MIAPJ0000PUS tumbled more than 4 percent. Markets were already jittery after Wall Street's Bear Stearns Cos Inc. BSC.N halted redemptions in a third hedge fund specializing in risky credit and a U.S. mortgage firm said it might liquidate.
Macquarie said the two Fortress funds -- which invest in securitized loans and have no direct exposure to U.S. subprime mortgages -- could lose up to a quarter of their value, or more than A$300 million ($254 million).
"It's the indirect exposure that people are worried about. Obviously some of their funds have exposure to markets that are contaminated or suffering some contagion from the subprime market," said Eric Betts, equities strategist at Nomura Australia.
"It seems a bit of an overreaction ... (but) in this environment, people will sell first and ask questions later."
Macquarie shares fell 10.7 percent to A$73.70, their biggest one-day fall in five years, knocking about A$2.1 billion off the value of Australia's biggest investment bank. The stock is down about 23 percent from all-time highs above A$97 a share in May.
Trading volume in Macquarie shares was the highest in a single day since November 3, 1998.
The U.S. subprime mortgage crisis emerged as a slump in the U.S. housing market led to a rise in mortgage defaults, a wave of credit downgrades and a mass desertion of the market by buyers.
The problem has been compounded for funds that borrow heavily to leverage up returns, and there are concerns that the problems are spreading beyond subprime borrowers.
Macquarie's warning follows the suspension of withdrawals in recent weeks by two Australian hedge funds, Basis Capital and Absolute Capital, as managers try to avoid a firesale of assets.
U.S., FRENCH FUNDS HIT
Bear Stearns, recently embarrassed by the collapse of two hedge funds, said on Tuesday it had halted redemptions in a third fund after worried investors wanted to pull out their money. Continued...
