US banks refuse to accept subprime collateral

The Financial Times reports:

US banks caught in the credit market upheaval have started refusing to lend money against hedge funds' subprime credit portfolios.

Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralised debt obligations and subprime securities, as collateral. That leaves the highly leveraged funds heavily reliant on their prime brokers for borrowing.

The banks mentioned were Bank of America and Countrywide, although there were believed to be others. Bank of America declined to comment. Countrywide did not return calls.

Hedge fund managers nervous about the reliability of theirlending sources were likely to attempt to reduce their level of borrowings further, said one hedge fund manager not directly affected by the banks' actions.

Several hedge fund managers, who spoke to the Financial Times on condition of anonymity, said funds that were heavy investors in the credit markets and, therefore, often highlyleveraged, were finding they were no longer able to use theirportfolios as collateral to borrow.

It was fun while it lasted.