Wednesday May 7, 04:52 PM
Subprime crisis inflicts more pain at German banks
BERLIN (AFP) - Results from two German banks on Wednesday showed that the knock-on effects of the US subprime home loan crisis are still being felt around the world.
Commerzbank (Xetra: 803200 - news) , Germany's second biggest private bank, warned after announcing a sharp fall in first-quarter profits that "it could be very difficult" for 2008 earnings to match the level of 2007.
It said that "while the immediate detrimental effects of subprime engagements appear to have passed their peak, there is evidence that the crisis is now making itself felt in other problem areas, among them leveraged buyouts (LBOs), collateralised debt obligations (CDOs) or consumer loans in the USA."
First-quarter net profit at Commerzbank slumped 54 percent from the year-earlier period to 280 million euros (434 million dollars) while operating profit fell 52 percent to 435 million euros.
Net profit for 2007 was 1.9 billion euros.
Meanwhile on Wednesday BayernLB, Germany's second largest regional bank, unveiled a first-quarter loss of 770 million euros because of 1.1 billion euros in writedowns linked to subprime or higher-risk US mortgages.
The Munich-based lender has already announced plans to place its risky subprime-related investments in this area into a separate structure guaranteed by the state of Bavaria.
Large numbers of US homeowners defaulted last year on risky mortgages that had been repackaged into various investment instruments and then traded by banks around the world.
BayernLB is not the only one of Germany's public banks to have had its fingers burned by the subprime crisis.
Two others, WestLB in the state of North Rhine-Westphalia and SachsenLB in Saxony, have also had to be rescued to the tune of several billion euros in public guarantees.
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