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Berlin calls Lehman fallout 'manageable' as Frankfurt tanks

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Berlin calls Lehman fallout 'manageable' as Frankfurt tanks
Photo: DPA
14:22 CEST+02:00
The German Finance Ministry on Monday said the country's exposure to the collapsed US investment bank Lehman Brothers was “manageable,” but that didn't stop financial shares from tanking on the Frankfurt stock market.

The ties of German banks to Lehman Brothers Holding, which has filed for bankruptcy protection, are in a manageable range and can be dealt with," the Finance Ministry said in a joint statement with the BaFin market regulator and the Bundesbank.

The three are in close contact with the country's banks as well as with international partners and "are watching very closely further developments on national and international markets," the statement said.

A spokesman for the finance ministry said that the year-old credit crunch has so far had "amazingly little effect" in Germany.

"What we are experiencing ... is that we are in a crisis that has not yet reached its end. It is something that has to be taken very seriously but this is basically an American crisis," Torsten Albig told journalists at the government's regular weekly press conference in Berlin.

"What we have learned so far is that so far the effect on German credit institutes, all in all, is not yet as noticeable as with American or other Anglo-Saxon institutes, something which is a testament to the stability of the German financial sector," he said.

But shares in Germany's Commerzbank were down more than 15 percent on Monday following the collapse of Lehman Brothers, making it the biggest loser on Frankfurt's DAX 30. The DAX was down 4.62 percent at 5,944.14 points.

Commerzbank announced last month it was buying Dresdner Bank in a €9.8-billion cash and shares deal. It plans to raise money to fund the acquisition via two capital increases.

Lehman Brothers announced it was filing for bankruptcy early Monday, prompting the Federal Reserve, the European Central Bank and the Bank of England to pump billions into money markets to stop them drying up.

The ECB injected €30 billion ($42.7 billion) in a one-day special operation, while the BoE said it had provided 5.0 billion pounds (€6.3 billion, $9.0 billion). Both operations had strong demand and were intended to keep banks lending to each other and prevent any credit squeeze from occurring.

Bank of America also announced it was taking over Merrill Lynch in a $50 billion deal to prevent what markets had feared would be the next collapse.

Insurance giant AIG meanwhile was reported to have sought a massive emergency loan to head off its own crisis and a group of banks set up a $70-billion global emergency fund.

BaFin said meanwhile it was imposing a moratorium on all assets of Lehman Brothers Bankhaus AG, Lehmans' German subsidiary, meaning it cannot pay bills, sell assets or accept any payments that are not to cover its debts. The unit has balance sheet assets of €16.2 billion ($23.0 billion) and liabilities of €14.3 billion, BaFin said.

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