• Germany's news in English

Germany's BayernLB bank takes massive subprime hit

AFP · 3 Apr 2008, 16:57

Published: 03 Apr 2008 16:57 GMT+02:00

Facebook Twitter Google+ reddit

Bavarian regional bank BayernLB said it had to take €4.3 billion in charges since the US market for high risk, or subprime, mortgages collapsed last year.

The German bank said that despite the problems, it still managed to post a 2007 net profit of €175 million but this was less than one-fifth the 2006 level of €989 million. Pre-tax profit plunged to €255 million from €1.33 billion.

The charges are being taken in two stages - €2.3 billion on the 2007 accounts and €2.0 billion for the first quarter of 2008, the bank said.

BayernLB is now in talks with shareholders, the southern state of Bavaria and the regional savings banks association, on a rescue plan similar to those needed at peers WestLB and SachsenLB.

BayernLB said it will create a separate vehicle to hold its risky asset-backed securities portfolio, which has a nominal value of €24 billion and for which cover of up to €6 billion would be established. The bank itself would put up €1.2 billion of this money, with shareholders responsible for the rest.

BayernLB said it expected to book losses of €1.2 billion on this portfolio, adding to the €100 million in losses already realized. The situation prompted chief executive Werner Schmidt to resign last month.

His successor, Michael Kemmer, said on Thursday that a cost-cutting plan aimed to save €150 million per year until 2010 might involve shedding jobs.

"In view of the international financial markets crisis I cannot rule out anything," Kemmer told a press conference.

Germany has 11 public regional banks and several have run into deep trouble owing to their investment in securities backed by bad US mortgages. Some are expected to merge or be taken over once the extent of damage from the US subprime crisis can be accurately determined.

Kemmer said he would not rule out bidding for troubled business lender IKB, perhaps the worst hit of all German banks.

"We want to expand our business with mid-sized companies and IKB is on the market. It would be negligent not to look into it," he said.

Story continues below…

On Wednesday, WestLB posted a 2007 net loss of €1.6 billion as a result of the global financial turmoil and losses from fraudulent stock trading.

The German state of North-Rhine Westphalia has said it will back a €5-billion rescue package for WestLB, in which it holds 38 percent.

German banks have been among the many casualties of the collapse of the US subprime home loan market, which has thrown international financial markets into a prolonged period of turbulence.

On Tuesday, the biggest German bank, Deutsche Bank, estimated first-quarter write-downs would reach roughly €2.5 billion owing to the turmoil. Deutsche bank already wrote down €2.2 billion in the third quarter of 2007.

Facebook Twitter Google+ reddit

Today's headlines
Creepy clown scare spreads to Germany
Two of the clowns were apparently equipped with chainsaws. Photo: Pedro Pardo / AFP file picture

Police said Friday five incidents involving so-called scary clowns had occurred in two north German town, including one assailant who hit a man with a baseball bat, amid fears that Halloween could spark a rash of similar attacks.

Student fined for spying on women via their webcams
Photo: DPA

Student from Munich fined €1,000 for spying on 32 different computers, using their webcams to take photographs, or record their keyboard history.

This is how much startup geeks earn in Germany
Photo: DPA

A comprehensive new survey of 143 startup founders shows how much you are likely to be earning at a German startup, from entry level all the way up to sitting on the board.

Man dies after beating for peeing near Freiburg church
The Johannes Church in Freiburg. Photo Jörgens Mi/Wikipedia

A middle-aged man from southern Germany has died after being attacked by a group of men who took umbrage with the fact he was urinating in the vicinity of a church.

The Local List
Seven German celebrities with uncanny doppelgängers
Former Berlin mayor Klaus Wowereit and actor Alec Baldwin. Photo: DPA; Gage Skidmore, Wikimedia Commons

Check out these seven look-a-likes of well known German figures - we admit that some are more tenuous than others...

Israel seeks to buy three new German submarines: report
A Dolphin class submarine. Photo: DPA

Israel is seeking to buy three more advanced submarines from Germany at a combined price of €1.2 billion, an Israeli newspaper reported Friday.

Here’s where people live the longest in Germany
Photo: DPA

Germans down south seem to know the secret to a long life.

More Germans identify as LGBT than in rest of Europe
Photo: DPA

The percentage of the German population which identifies as lesbian, gay, bisexual or transgender is higher than anywhere else in Europe, according to a new study.

'Reichsbürger' pair attack police in Saxony-Anhalt
File photo: DPA.

A "Reichsbürger" and his wife attacked police officers on Thursday, just a day after another Reichsbürger fatally shot an officer in Bavaria.

Five things not to miss at the Frankfurt Book Fair
Photo: DPA

From consulting a book doctor to immersing yourself in an author's world with the help of virtual reality, here are five things not to miss at this week's Frankfurt Book Fair, the world's largest publishing event.

Sponsored Article
How to vote absentee from abroad in the US elections
10 things you never knew about socialist East Germany
Sponsored Article
Last chance to vote absentee in the US elections
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
Sponsored Article
How to vote absentee from abroad in the US elections
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd