WestLB will give an $11 billion credit guarantee to prop up an investment company in the face of global market turmoil, the stricken regional German lender confirmed on Tuesday.
The move is a risk for WestLB, which has already been pushed into the red this year by rocky financial markets and bungled trading, and raises a further question mark over the bank's future.
WestLB decided to act to stabilise the structured investment vehicle (SIV), which is managed by a subsidiary of the bank, in order to keep customers who have invested in it happy.
A spokesman said the move meant the investment company -- named Harrier -- would not be forced into a fire sale of investments. Harrier's investments have dwindled in value but WestLB hopes they will recover if markets pick up.
"WestLB is acting in the best interests of both SIVs and their investors," a spokesman for the bank said, confirming earlier media reports. Harrier is one of two SIVs run by a WestLB subsidiary.
Separately, DZ Bank told staff in a letter that financial market turmoil would squeeze profits significantly in 2007.
DZ Bank, which acts as the central bank for Germany's cooperative lenders, expects to make a pretax profit of about 1 billion euros ($1.5 billion), Chief Executive Wolfgang Kirsch wrote in a letter seen by Reuters.
This is more than a third below the previous year's 1.6 billion euros.
The credit crisis, which started when high-risk U.S. home owners were squeezed by falling property prices and rising interest rates, has rocked confidence in the global economy.
It has cost banks around the world more than $50 billion and forced the exit of the bosses of Citigroup and Merrill Lynch .
Germany, Europe's biggest economy, has taken an especially hard beating from the credit market turbulence.
Two of its banks nearly collapsed under the strain. IKB, a formerly little-known small-business lender, has become a byword in Germany for the subprime crisis, while state bank SachsenLB was also saved by a last-minute rescue.
The crisis could push some banks into hastily arranged marriages. SachsenLB was sold to a rival regional lender, LBBW in southern Germany.
WestLB has also been touted as a partner for LBBW. The local government, which owns almost 40 percent of WestLB, is reluctant to sell, however. WestLB is due to report its third-quarter results on Thursday.