July 31 (Bloomberg) -- Oddo & Cie, a French stockbroker and money manager, plans to close three funds totaling 1 billion euros ($1.37 billion), citing the ``unprecedented'' crisis in the U.S. asset-backed securities market.

Oddo said it will wind down the funds within the ``shortest possible time frame'' because of a plunge in prices for collateralized debt obligations, notes backed by other bonds, loans and their derivatives.

The highest level of defaults in 10 years on U.S. mortgages drove the risk premium on corporate bonds in Europe to the widest in at least three years yesterday, based on prices for credit-default swaps. Commerzbank AG, Germany's second-biggest bank by assets, yesterday said it expects to make provisions of about 80 million euros for potential loan losses tied to the U.S. subprime mortgage market, and IKB Deutsche Industriebank AG in Dusseldorf said it was scrapping its earnings forecast as ``massive uncertainty'' threatens access to funding.

``Like many actors, we have tried to revitalize the performance of our funds by investing in CDOs,'' Arnaud Ploix, a spokesman for Paris-based Oddo, said in an interview today. ``Like others, we noticed recent problems with short-term liquidity and were caught out by the subprime dilemma.''

Basis Capital Fund Management Ltd. and Absolute Capital Group Ltd., both based in Sydney, froze investor accounts this month because of the subprime mortgage slump.

Asset Sales

Oddo oversees 22 billion euros of investments excluding the three funds being closed. The funds, called Oddo Cash Titrisation, Oddo Cash Arbitrages and Oddo Court Terme Dynamique, held some 15 percent of investments in U.S. CDOs.

The manager will sell the securities least affected by the credit rout immediately, if the plan gets French regulatory approval, and will reimburse investors in September, the statement said. It may take ``several months'' to offload assets worst affected, the company said in the statement, published July 27. Le Figaro reported the company's plans earlier today.

CDOs repackage loans, bonds and other assets into new securities. Some of the new debt carries higher ratings than the underlying collateral, with a majority typically getting AAA ratings. Bankers are able to create high-rated securities from a pool of lower rated bonds by dividing the pool into different parts, or tranches.

Payments from the underlying bonds go first to the senior, highest rated AAA obligations, then to the next-highest tranches, in descending order.

More than half the CDOs in the Oddo funds were rated AAA or AA, the company said.

Standard & Poor's said today it may downgrade an additional $1 billion of collateralized debt obligations as part of its reassessment of rated investments in the mortgage market, bringing the total amount of CDOs under review to $5.7 billion.

To contact the reporter on this story: Neil Unmack in London at nunmack@bloomberg.net; Jacqueline Simmons in Paris at jackiem@bloomberg.net

Last Updated: July 31, 2007 14:29 EDT