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German bank becomes first EU victim of U.S. subprime mortgage woes
By Carter Dougherty
Published: July 30, 2007
FRANKFURT: A small German bank on Monday became the first European victim of gambles in securities issued by the tottering subprime mortgage business in the United States. The news raised the possibility that a contagion may reach further into European markets than had been anticipated.
IKB Deutsche Industriebank, a bank that provides loads to medium-sized companies, said that investments in the financial instruments that fueled the subprime lending industry in the United States were sinking in value, threatening its own creditworthiness.
As a result, the German state bank KfW, which owns 37 percent of IKB, will assume financial responsibility for the investments. IKB's chief executive, Stefan Ortseifen, will also be replaced by Günther Bräunig, a managing director at KfW.
Since the bank had said only 10 days ago that its investment portfolio was in good shape, the announcement riled credit markets Monday in Europe. The cost of borrowing for major European companies spiked as investors pondered whether subprime-related investments have become a concealed risk for economies an ocean away from the United States.
"The question right now is whether it will be solely a crisis for financial markets, or for the real economy," said Jochen Felsenheimer, head of credit strategy at UniCredit in Munich. "The challenge that we are facing is that these crises can be self-fulfilling."
http://www.netscape.com/viewstory/2007/07/30/german-bank-becomes-first-eu-victim-of-us-subprime-mortgage-woes/?url=http%3A%2F%2Fwww.iht.com%2Farticles%2F2007%2F07%2F30%2Fbusiness%2Fsub.php
By Carter Dougherty
Published: July 30, 2007
FRANKFURT: A small German bank on Monday became the first European victim of gambles in securities issued by the tottering subprime mortgage business in the United States. The news raised the possibility that a contagion may reach further into European markets than had been anticipated.
IKB Deutsche Industriebank, a bank that provides loads to medium-sized companies, said that investments in the financial instruments that fueled the subprime lending industry in the United States were sinking in value, threatening its own creditworthiness.
As a result, the German state bank KfW, which owns 37 percent of IKB, will assume financial responsibility for the investments. IKB's chief executive, Stefan Ortseifen, will also be replaced by Günther Bräunig, a managing director at KfW.
Since the bank had said only 10 days ago that its investment portfolio was in good shape, the announcement riled credit markets Monday in Europe. The cost of borrowing for major European companies spiked as investors pondered whether subprime-related investments have become a concealed risk for economies an ocean away from the United States.
"The question right now is whether it will be solely a crisis for financial markets, or for the real economy," said Jochen Felsenheimer, head of credit strategy at UniCredit in Munich. "The challenge that we are facing is that these crises can be self-fulfilling."
http://www.netscape.com/viewstory/2007/07/30/german-bank-becomes-first-eu-victim-of-us-subprime-mortgage-woes/?url=http%3A%2F%2Fwww.iht.com%2Farticles%2F2007%2F07%2F30%2Fbusiness%2Fsub.php