Germany’s BayernLB bank takes massive subprime hit

Germany's second-biggest regional state bank reported on Thursday a massive hit from the global credit crunch and said it was putting together a €6-billion ($9.4-billion) rescue package.

Germany's BayernLB bank takes massive subprime hit
Photo: DPA

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.

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.


Four injured as WWII bomb explodes near Munich train station

Four people were injured, one of them seriously, when a World War II bomb exploded at a building site near Munich's main train station on Wednesday, emergency services said.

Smoke rises after the WWII bomb exploded on a building site in Munich.
Smoke rises after the WWII bomb exploded on a building site in Munich. Photo: picture alliance/dpa | Privat

Construction workers had been drilling into the ground when the bomb exploded, a spokesman for the fire department said in a statement.

The blast was heard several kilometres away and scattered debris hundreds of metres, according to local media reports.

Images showed a plume of smoke rising directly next to the train tracks.

Bavaria interior minister Joachim Herrmann told Bild that the whole area was being searched.

Deutsche Bahn suspended its services on the affected lines in the afternoon.

Although trains started up again from 3pm, the rail operator said there would still be delays and cancellations to long-distance and local travel in the Munich area until evening. 

According to the fire service, the explosion happened near a bridge that must be passed by all trains travelling to or from the station.

The exact cause of the explosion is unclear, police said. So far, there are no indications of a criminal act.

WWII bombs are common in Germany

Some 75 years after the war, Germany remains littered with unexploded ordnance, often uncovered during construction work.

READ ALSO: What you need to know about WWII bomb disposals in Germany

However, most bombs are defused by experts before they explode.

Last year, seven World War II bombs were found on the future location of Tesla’s first European factory, just outside Berlin.

Sizeable bombs were also defused in Cologne and Dortmund last year.

In 2017, the discovery of a 1.4-tonne bomb in Frankfurt prompted the evacuation of 65,000 people — the largest such operation since the end of the war in Europe in 1945.