By Steve Goldstein, MarketWatch Last Update: 5:28 AM ET Aug 21, 2007Print E-mail Subscribe to RSS Disable Live Quotes LONDON (MarketWatch) -- The chief executive of one of Germany's largest state-backed banks warned that foreigners were increasingly loath to extend credit to financial institutions in Europe's largest economy, which could spark a crisis.
"We sense reluctance on the part of foreign partners to extend credit to German banks," WestLB CEO Alexander Stuhlmann told journalists on the sidelines of a bank event, according to wire service reports. "If we have a banking crisis in Germany with other countries cutting us off, then other banks will also face difficulties." His comments come days after a German lender, SachsenLB, said it required a credit line of 17.3 billion euros ($23.2 billion) because of the investments it had made in securities affected by the U.S. subprime mortgage crisis. IKB Deutsche Industriebank (DE:806330: news, chart, profile) required a similar bailout. Both SachsenLB and IKB operated companies called conduits that issued short-term paper and then reinvested the proceeds in higher-yield, longer-term debt -- such as the residential mortgage-backed securities that have declined in value as poorer Americans default on risky mortgages. A U.K. fund on Monday disclosed a similar problem. See related story. But unlike the U.K. fund, SachsenLB and IKB were all or partly under government control, and that's one of the problems in Germany. Germany is widely perceived as an "overbanked" country: there are more banks in Germany than in the U.K., France and Italy combined. In turn, private-sector banks such as Deutsche Bank (DB:deutsche bank ag namen ord News, chart, profile, more Last: 126.10-2.59-2.01%
5:48am 08/21/2007
Delayed quote dataAdd to portfolio Analyst Create alertInsider Discuss Financials Sponsored by: DB126.10, -2.59, -2.0%) or state-backed institutions such as SachsenLB look overseas or to aggressive trading strategies for profit. Stuhlmann has been CEO of WestLB since the end of July. His predecessor was ousted in the wake of losses from making bets on the moves of difference classes of shares in companies such as Volkswagen (DE:766400: news, chart, profile) . He insisted WestLB's liquidity was "very, very good," with limited exposure to the subprime sector. First-half results, to be released on Aug. 30, won't result in a "shockwave," he said. Many analysts expect consolidation of the German savings banks, with the largest, Landesbank Baden-Wuerttemberg, widely considered a good fit with WestLB. Steve Goldstein is MarketWatch's London bureau chief.
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