The eastern German state of Saxony is set to support regional bank SachsenLB should it be hit by a payment crisis owing to subprime-related problems, a press report said Wednesday.
SachsenLB could regroup investment funds known as structured investment vehicles (SIV) into a single unit for which Saxony would provide guarantees of up to one billion euros (1.47 billion dollars), the daily Handelsblatt said.
That would avoid SachsenLB's having to sell security-backed assets at a loss. SachsenLB was saved from bankruptcy in August by a lifeline thrown by German national savings banks worth 17.3 billion euros, followed by an takeover bid from another regional bank, LBBW.
SachsenLB was one of the German banks most exposed to losses after the US market for high-risk mortgages collapsed, sparking a crisis in trading of securities backed by the loans and a broader credit crunch as banks became wary of lending to one another.
On Tuesday, a spokesman for the regional German bank WestLB said it had drawn up credit lines totalling 14 billion euros for two of its troubled SIVs, with investors waiting for the bank's quarterly results on Thursday to see how that would affect WestLB's own capital base.
The turmoil has not spared German co-operative banks either, Handelsblatt added. DZ Bank expects its pretax profit to fall by 40 percent to around one billion euros this year from 1.6 billion a year earlier, the newspaper said, citing a management letter to employees. DZ Bank reiterated that it expected write-offs of at least 10 million euros owing to the financial market turbulence.