German DZ Bank Posts $2 Billion in Writedowns


One of Germany's biggest financial groups, DZ Bank, joined the country's growing list of casualties from the subprime mortgage crisis on Thursday by posting 1.36 billion euros ($2 billion) in writedowns.

DZ Bank is the central bank for Germany's roughly 1,100 cooperative banks and links them to international capital markets.

Its role is similar to that of a landesbank such as WestLB, which acts as a window on the global world of finance for community savings banks. Landesbanks have also been hard hit by the financial market ructions.

DZ warned that worse writedowns could follow because of rating agency downgrades on investments and a deterioration in the market for this kind of debt at the start of this year.

DZ Bank still has a portfolio of risky debt investments of 26 billion euros, almost 3 billion euros of which is in subprime mortgages.

"It is very difficult to make a prediction for the current year," Chief Executive Wolfgang Kirsch told journalists at a news conference.

Germany has been one of the countries worst affected by the global credit crisis, which was triggered when subprime (high-risk) U.S. home owners started to default on their mortgages.

It pushed company lender IKB and state bank SachsenLB to the brink of collapse before both were saved by last-minute rescues.

The tumult also savaged the country's landesbanks such as BayernLB, regional lenders which are party owned by local government.

WestLB has also been saddled with heavy writedowns, forcing it to look for a partner. It had wanted to merge with Helaba, a neighbouring landesbank. But the savings banks that own Helaba said on Thursday that they did not want this.

The subprime domino effect in Germany has undermined the image of the country's banking industry abroad and made international investors nervous.

Last week, the euro was rattled when a top German politician remarked that the country's landesbanks were in crisis.

Josef Ackermann, head of Deutsche Bank, warned on Thursday of a difficult year ahead: "The first six to nine months of this year will stay tough for the financial markets," he said.