The turmoil in the US subprime mortgage market is making it difficult for German banks to get credit lines from their foreign partners, the chief executive of state-backed lender WestLB said late on Monday.
Underlining the severity of the impact of US subprime woes on German banks following the near-collapse of lender IKB this month, Alexander Stuhlmann said the sector was in a "not uncritical situation" overall. He said German banks' rescue of small-company lender IKB had raised the impression abroad that the entire German banking sector was facing problems.
IKB last month unveiled a shock profit warning after running into problems with its investments linked to the market for risky mortgages in the United States. A consortium of German banks forged a 3.5 billion euro ($4.7 billion) rescue of IKB but the problems sent shockwaves through the credit markets as investors speculated that other German and European banks would be affected.
Since then, fellow state bank SachsenLB has also run into subprime-related problems and had to be propped up by fellow banks with a 17.3 billion euro credit line. WestLB itself has said it has over 1.2 billion euros in overall US subprime exposure, but Stuhlmann said the Duesseldorf-based bank could cover all its risks from its own liquidity. "We are not in a situation like IKB," he said.
WestLB, whose previous CEO, Thomas Fischer, left after a trading scandal, is moving towards a merger with a new partner. The state of North Rhine-Westphalia (NRW) wants to sell its stake of around 38 percent in the lender and plans to bring in an investment bank as adviser in September.