One trillion dollars at risk in German banks

27th April 2009, Comments 0 comments

Berlin has so far provided more than 100 billion euros' worth of state guarantees in an effort to keep Hypo Real Estate afloat and recently passed an emergency bank nationalisation law giving it the power to seize investors' shares by force if necessary.

Berlin -- Germany's banking system is exposed to over one trillion dollars' worth of "toxic" or risky assets, news media in Europe's largest economy said Saturday citing a confidential financial watchdog report.

Within the 816-billion-euro headline sum (1,080 billion dollars), 355 billion euros are held in the network of Germany's regional state banks, according to the document revealed by the Suddeutsche Zeitung newspaper and the online edition of Der Spiegel magazine.

Another 268 billion euros is attributed to the troubled Hypo Real Estate bank, which on Friday moved a step closer to becoming Germany's first full nationalisation since 1949.

Berlin has so far provided more than 100 billion euros' worth of state guarantees in an effort to keep Hypo Real Estate afloat and recently passed an emergency bank nationalisation law giving it the power to seize investors' shares by force if necessary.

Private banks get off relatively lightly in the report, with 139 billion at risk at the merged Commerzbank/Dresdner Bank, which has received combined state bailout aid amounting to over 18 billion euros to-date.

The publication of the report was condemned by the Bafin watchdog, which said it is filing a formal complaint and warned against any "erroneous interpretation" as the German government ponders action to prop up its troubled economy ahead of September general elections.

Senior government ministers have held talks on a plan to help lenders clean up their balance sheets, possibly by allowing them to park difficult loans in their own individual mini "bad banks." A bill is due to be presented to lawmakers by mid-May.

Berlin's bid to rid its banks of these bad holdings follows similar plans in other countries, notably the United States, Britain and Ireland.

However, politicians are torn between the urgent economic need to revive the banking sector and the political desire not to saddle taxpaying voters with a huge bailout bill.

On Saturday, Bundesbank chief Axel Weber warned that the figures published "do not reflect the complexity of the problem."

German junior finance minister Jorg Asmussen said "this latest list can hide all sort of very different assets."

Bafin said that not all were "toxic," saying that according to the banks, some assets "no longer correspond to their present commercial strategy and... should therefore be externalised."

A spokesman for Commerzbank told Suddeutsche Zeitung that the bank didn't know who compiled the figures.

Hypo Real Estate, for its part, refused all commentary.

Der Spiegel added that a meeting on the future of the struggling regional Landesbanken will be chaired Monday by Finance Minister Peer Steinbrueck.

Steinbrueck said last week that Germany's economy could contract by as much as five percent in 2009, echoing even worse predictions by the International Monetary Fund.

Chancellor Angela Merkel has been criticised at home and abroad for acting too slowly to stem the crisis. Data has shown that her government's two stimulus packages worth a total 80 billion euros have had little effect so far.

The economic gloom is certain to provide a major battleground as Merkel bids for a second term on September 27.

Public debt will rise by over a third to at least 50 billion euros in 2009, Steinbrueck is quoted as saying in an interview to appear in Sunday's Die Welt newspaper.

AFP/Expatica

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