Subprime burns hole in German state bank lenders
FRANKFURT (Reuters) - The credit storm continued to wreak havoc in Germany on Thursday with the country's largest state-owned regional lender unveiling a $1.2 billion hit from investments linked to risky U.S. home loans.
LBBW LBBW.UL said that it expected problems linked to subprime mortgages would cost it around 800 million euros ($1.2 billion).
Separately, it emerged that SachsenLB, a rival state regional lender, had been gutted of capital after its investments linked to subprime turned sour.
SachsenLB's owners agreed to its sale to LBBW earlier this year in return for a 17 billion-euro credit line from a group of state banks to keep it afloat.
On Thursday, sources familiar with the matter said that the episode had effectively wiped out SachsenLB's capital base of about 1.5 billion euros, making SachsenLB effectively worthless.
The German state of Saxony's finance ministry said it was too early to say what impact credit market woes would have on LBBW'S planned takeover of SachsenLB.
LBBW's investments in subprime, on the other hand, are less critical for the bank. The Stuttgart-based group said that it did not expect the damage, which represents less than 1 percent of its investments, to have a big impact on profit.
It qualified its estimate of the subprime damage, saying that a forecast for the whole year was not possible.
The credit crisis, which started when higher-risk U.S. home owners were squeezed by falling property prices and rising interest rates, has rocked confidence in the global economy.
It has cost banks around the world more than $50 billion and forced the exit of the bosses of Citigroup (C.N) and Merrill Lynch MER.N.
Germany -- Europe's biggest economy -- has taken an especially hard beating from the credit market turbulence.
Two of its banks nearly collapsed under the strain. IKB (IKBG.DE), a formerly non-descript lender to small businesses, has become a byword in Germany for the subprime crisis, while SachsenLB was saved by LBBW's last-minute rescue.
(Additional reporting by Patricia Nann and Hendrik Sackmann; Writing by John O'Donnell; Editing by Quentin Bryar)
