Brokerage Stocks Crushed

The big banks and brokerages got hammered again Thursday after a big French securities firm warned that it will be hit by the collapse of subprime mortgage securities.

BNP Paribas said Thursday that it was halting investor redemptions in three of its funds tied to U.S. securities.

The Paris-based bank is temporarily suspending net asset value calculations on three of its funds -- Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia -- as it seeks to determine the value of subprime paper held by the funds.

It blamed the "complete evaporation of liquidity in certain market segments of the U.S. securitization market" that has made it "impossible" to value the assets. It said it will resume calculating the funds' NAV "as soon as liquidity returns to the market," according to a statement.

Bear Stearns(BSC), Goldman Sachs(GS), Lehman Bros.(LEH) and Morgan Stanley(MS) fell at least 5%. The standout in the group was Merrill Lynch(MER), down just 4%.

Among the banks, Citigroup(C) and JPMorgan Chase(JPM) dropped nearly 4%, while Bank of America(BAC) fell 2%.

Adding fuel to the fire was a note issued Thursday by Sanford Bernstein, which cut earnings estimates for the Wall Street brokers because of weaker expected fixed-income trading and debt underwriting revenue through 2008.

"We also expect wider credit spreads and more difficult market conditions to constrain new financial sponsor announced M&A activity in quarter four and into 2008," writes Sanford Bernstein analyst Brad Hintz in the note. "At this point, we recommend that investors take their summer vacations, and ride out this storm with Merrill Lynch and Morgan Stanley, while waiting for an expected recovery."

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