Citigroup, JPMorgan sell Basis Capital assets: report

SYDNEY (Reuters) - Citigroup and JPMorgan Chase are hastily selling some of the assets of troubled Australian hedge fund Basis Capital, the Wall Street Journal reported on Wednesday.

The assets were among a long list of subprime-related bonds being sold by Wall Street firms in an effort to contain losses amidst turmoil in structured credit markets.

On Monday, Basis Capital suspended withdrawals from its flagship fund, days after informing investors that the investment house had been swept up in the U.S. sub-prime mortgage crisis.

"The current situation in structured credit markets is currently extremely uncertain which has resulted in difficulty valuing the underlying investments of the funds. For that reason, we have decided to suspend applications and redemptions," said the firm's Managing Director Stuart Fowler, in a brief statement.

The Basis Yield Fund, with net assets of A$341 million ($296 million) in net assets, fell by just under 13.7 percent and Basis Aust-Rim Fund, with A$316 million in net assets, fell by 9.2 percent in June, according to a report by the Australian Financial Review.

Ratings agency Standard and Poor's was due to talk to the hedge fund to discuss the underperformance of the funds.

The troubled funds are rated five stars, the highest rank by S&P.

Investment research provider Van Eyk said it put the ratings of Basis Capital's funds on hold on Friday. The research house had previously downgraded the funds but did not give more details.

Van Eyk holds a minor interest in Basis Capital with less than A$1 million out of a A$1.6 billion fund. The firm has been redeeming its stake since July 2006.

Basis Capital's turmoil follows the collapse of two of Bear Stearns Cos. Inc.'s BSC.N hedge funds which bet heavily on risky subprime loans.

Bear Stearns told investors on Tuesday the funds now have "very little value." The losses sent a benchmark index of subprime mortgage bonds to record lows, reflecting concern that the worst is not yet over for the US$7 trillion market for mortgage-related bonds.

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