Sunday, August 12, 2007

Two More German Banks Announce Problems

From Bloomberg:

WestLB AG, Germany's third-largest state bank, has 1.25 billion euros ($1.7 billion) invested in securities linked to the U.S. subprime mortgage market.

``We're relatively relaxed regarding the long-term valuation of our securities because of their high underlying quality,'' spokesman Hans Obermeier said in an interview today. Of the subprime securities, 98 percent are rated A or better and 87 percent AA or better, he said.

WestLB on Aug. 9 said the bank, including its Brightwater Capital Management unit, isn't facing a ``liquidity crisis,'' rebuffing a report about possible losses at the New York-based division. Late payments on U.S. subprime mortgages to borrowers with poor credit histories are at their highest since 2002, driving down the value of bonds backed by home loans and causing turmoil in credit markets.

From Bloomberg:

Deutsche Postbank AG, Germany's biggest consumer bank by clients, has about 800 million euros ($1.1 billion) of investments linked to U.S. residential mortgages, including subprime loans.

The lender last week moved 600 million euros of investments, including 200 million euros in subprime-related securities, on to its own balance sheet, Postbank spokesman Joachim Strunk said. The 600 million euros stem from liquidity lines to two special- purpose vehicles run by Rhineland Funding Capital Corp., the U.S.-based company whose subprime woes led to a government- sponsored bailout of IKB Deutsche Industriebank AG.

``We still don't see any material effects from our property- related investments,'' Strunk said. Postbank remains ``convinced of the quality of these papers,'' all of which are rated AAA and AA, the highest investment grades, he said.

These are big banks. While the banks official statements regarding this exposure is one of calm, these banks are not going to say, "we've got major problems" -- at least not yet.