Merkel warns 2009 will be "year of bad news" for economy

Channel News Asia
Merkel warns 2009 will be "year of bad news" for economy
Posted: 22 November 2008 2228 hrs

BERLIN : Chancellor Angela Merkel warned that 2009 will be "a year of bad news" for the economy, while a German regional bank announced it had secured Saturday up to 30 billion euros in state loan guarantees.

"We must expect that next year will be a year of bad news, at least in the first months," Merkel was quoted as saying in an interview to be published in the Welt am Sonntag newspaper on Sunday.

She said it was harder than before to predict the progress of the international and German economic situations.

"We have stabilised the financial markets thanks to a series of measures for the banks, but confidence still has to be found again and the interbanking market must become functional again," Merkel said.

Berlin's Financial Markets Stabilisation Fund offers up to 400 billion euros in guarantees to get the interbank lending market functioning again, and up to 80 billion euros in direct cash infusions to bolster banks' balance sheets.

Merkel's comments came as HSH Nordbank announced it had obtained up to 30 billion euros (38.5 billion dollars) in loan guarantees, the largest chunk yet allocated from the special fund which was set up last month.

Based in the port of Hamburg and the state of Schleswig-Holstein, the regional public bank had requested government aid earlier this month.

"We are working on a series of concrete measures that will allow us to advance the future strategy of HSH Nordbank," interim chief executive officer Dirk Jens Nonnenmacher said after the deal was agreed late Friday.

Shareholders will "ensure that the bank benefits from equity accordingly," the bank said in a statement, adding that it had "different tools" at its disposal, with the elimination of assets a top target.

The board of directors and shareholders will meet in the coming weeks to discuss their options, the statement said.

The former head of Nordbank, Hans Berger, resigned on November 10 due to the financial crisis.

Announcing its plans on November 3 to seek state loan guarantees, the bank said it had recorded a net loss of 360 million euros in the third quarter of 2008.

It also wrote down the value of its assets by around one billion euros in the same period owing to the bankruptcy of US investment bank Lehman Brothers and financial turmoil in Iceland.

Nordbank's announcement came after Germany's biggest state-owned regional bank, Landesbank Baden-Wuerttemberg (LBBW), said Friday it may seek between 10 billion and 15 billion euros in loan guarantees from the government.

LBBW also said its owners -- the state of Baden-Wuerttemberg, the city of Stuttgart and local savings banks -- would provide five billion euros (6.3 billion dollars) in fresh capital.

Regional bank BayernLB was the first one to tap into the rescue package, getting a 5.4 billion euro capital injection from the government and one billion more euros from its regional shareholders.

Hypo Real Estate, Germany's biggest financial crisis casualty to date, said on Friday it has been given more help from Berlin with 20 billion euros (25 billion dollars) in loan guarantees.

- AFP/vm