Germany's Sachsen LB pegs exposure at over $4 bn
Landesbank Sachsen Girozentrale, the German state-owned bank getting emergency funding, has about e3 billion ($4 billion) in investments linked to US subprime mortgages, according to a person with knowledge of the matter.
By Agencies |
FRANKFURT: Landesbank Sachsen Girozentrale, the German state-owned bank getting emergency funding, has about e3 billion ($4 billion) in investments linked to US subprime mortgages, according to a person with knowledge of the matter.
The bank’s Ormond Quay finance unit holds the securities among its AAA rated asset-backed bonds, according to a source. Ormond Quay invests in securities backed by residential mortgages, commercial property and credit cards.
The Leipzig-based lender is the second German bank after IKB Deutsche Industriebank to get funding after a credit crunch prevented finance units from selling commercial paper, debt due in 270 days or less. Sachsen LB obtained e17.3 billion in credit on August 17 from German state-owned banks to repay debt from Ormond Quay.
“I would have never thought that IKB or Sachsen LB would get into so much trouble,” said Wolfgang Gerke, president of the Bavarian Finance Center and a former professor of banking and finance. The events will accelerate consolidation among state- owned lenders, he said.
Saxony’s finance minister Horst Metz in an e-mailed statement Sun-day dismissed as “speculation” that Sachsen LB faced losses of 500 mil-lion euros linked to Ormond Quay. The company declined to comment. Ormond Quay was founded in 2004 and is managed by Sachsen LB's Dublin-based Sachsen LB Europe unit.
The highest default rate in a decade on US subprime mortgages has spilled into credit markets and prompted central banks around the world to inject more than $350 billion of emergency funds into the financial system to smooth lending between banks. Investors have fled even money market funds, considered among the safest instruments, in case they have invested in debt backed by mortgages to the riskiest borrowers.
European Union regulators will examine whether the credit line included state aid. EU Competition Commissioner Neelie Kroes’s department asked the German government for information to determine “whether there are elements of state aid or not,” European Commission spokeswoman Amelia Torres told reporters in Brussels Sunday.
The bank’s Ormond Quay finance unit holds the securities among its AAA rated asset-backed bonds, according to a source. Ormond Quay invests in securities backed by residential mortgages, commercial property and credit cards.
The Leipzig-based lender is the second German bank after IKB Deutsche Industriebank to get funding after a credit crunch prevented finance units from selling commercial paper, debt due in 270 days or less. Sachsen LB obtained e17.3 billion in credit on August 17 from German state-owned banks to repay debt from Ormond Quay.
“I would have never thought that IKB or Sachsen LB would get into so much trouble,” said Wolfgang Gerke, president of the Bavarian Finance Center and a former professor of banking and finance. The events will accelerate consolidation among state- owned lenders, he said.
Saxony’s finance minister Horst Metz in an e-mailed statement Sun-day dismissed as “speculation” that Sachsen LB faced losses of 500 mil-lion euros linked to Ormond Quay. The company declined to comment. Ormond Quay was founded in 2004 and is managed by Sachsen LB's Dublin-based Sachsen LB Europe unit.
The highest default rate in a decade on US subprime mortgages has spilled into credit markets and prompted central banks around the world to inject more than $350 billion of emergency funds into the financial system to smooth lending between banks. Investors have fled even money market funds, considered among the safest instruments, in case they have invested in debt backed by mortgages to the riskiest borrowers.
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European Union regulators will examine whether the credit line included state aid. EU Competition Commissioner Neelie Kroes’s department asked the German government for information to determine “whether there are elements of state aid or not,” European Commission spokeswoman Amelia Torres told reporters in Brussels Sunday.
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