German banks next to be hit

The Straits Times
Nov 5, 2008
German banks next to be hit

FRANKFURT - SEVERAL German savings banks which were considered safe from international financial turmoil could suffer from business done with state-owned regional bank WestLB, a press report said on Wednesday.

Between 2003-2006, Duesseldorf-based WestLB sold high risk securities to several savings banks in the northwestern state of North Rhine-Westphalia that now face 'high asset devaluations' according to the business daily Financial Times Deutschland.

The securities are so-called CDOs, or collateralised debt obligations, which are basically a portfolio of fixed-income assets that were sliced up and sold to investors.

CDOs were the category of investments most affected when the US market for high-risk, or subprime, mortgages collapsed in mid 2007.

Several savings banks have filed complaints against WestLB, charging they were poorly advised by the bank which they say sought to pass on the risky investments to others, the newspaper said.

The state-owned savings banks have not been seriously hurt so far by the financial crisis that emerged when the US subprime market collapsed, though they have participated in several major bailout plans for banks that were affected.

WestLB, in which local savings banks own a stake of 50.4 per cent, said on Monday that it would seek government assistance via a banking sector rescue package, but has not said how much help it needs.

Two other state-owned regional banks, BayernLB in the south and HSH Nordbank in the north have written down the value of their assets by large amounts, and have also decided to take advantage of the government bail-out plan.

It offers up to 80 billion euros (S$152.4 billion) in cash injections and up to 400 billion euros in guarantees for interbank loans. -- AFP