Another German bank is hit by US subprime-sparked woes

Düsseldorfer Hypothekenbank has become the latest German bank to run into trouble amidst the global financial market crisis, the German banking association BdB said on Tuesday.

Another German bank is hit by US subprime-sparked woes
Photo: DPA

The small bank’s owners have temporarily transferred it to the BdB’s depositor guarantee fund, after which it was to be sold to a third party.

“This will help overcome difficulties into which the company ran in the current tense market environment,” the BdB said in a statement.

Düsseldorfer Hypothekenbank finances public projects and real-estate development with funds it raises on the German market for mortgage-backed bonds, or Pfandbriefe.

Repayment of its Pfandbriefe was secured, the association said.

Both the German financial watchdog BaFin and central bank have been informed of the transaction and welcomed the measures because they contributed to strengthening the Pfandbriefe market, the BdB said.

In 2006, Düsseldorfer Hypothekenbank posted interest income of €49 million ($78 million) and net profit of €22 million ($35 million).

Last year, net profit fell to €100,000 ($159,000) owing to writedowns on the value of its assets and losses in its trading activities.

The bank is owned by the Schuppli family, which earlier this year injected €100 million into it.

Düsseldorfer Hypothekenbank joins public institutions like the business lender IKB and regional banks SachsenLB and WestLB among German financial institutions that have taken heavy losses in connection with the US subprime mortgage debacle.

Securities backed by high-risk US home loans were repackaged and sold to banks which then got slammed when borrowers defaulted on the loans in large numbers.


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.