Commerzbank's shares slid on Monday after its chief executive acknowledged that the bank's losses from investments linked to risky subprime mortgages would be higher than expected.
Dwindling speculation about a takeover of Germany's second-biggest listed bank also weighed on the shares, which fell more than 5 percent in early trade.
Commerzbank said in July it would book 80 million euros ($114 million) to cover expected subprime-related losses. But sources familiar with the matter told Reuters in September that the bank was bracing itself for a bigger bill.
On Monday, Chief Executive Klaus-Peter Mueller said Commerzbank's losses from investments related to subprime would be more than it had predicted during the summer.
"That will not be enough," he told German daily Financial Times Deutschland, although he added there was no need to change the bank's 2007 forecasts.
The comments sent the stock to a low of 28.27 euros. It was still down 3.8 percent at 29.01 euros, one of the top decliners in the German blue chip index.
"Everyone is very panicky about subprime," said Alan Webborn, an analyst with Societe Generale. "The news from the U.S. banks has not been particularly good. And UBS, for example, are writing down triple-A rated paper."
Mueller also warned that the fallout from the subprime-mortgage crisis would continue to haunt banks into next year.
He said there would be two further waves from the subprime storm when banks release their third-quarter results and full-year figures by next March.
"I expect the markets to normalize by then at the latest," Mueller said in an interview with German magazine Wirtschaftswoche.
Germany had been first hit in Europe by the storm in credit markets triggered by the failure of high-risk U.S. borrowers to keep up with their mortgage payments.
Bigger subprime damage could threaten Commerzbank's original pledge significantly to beat its profit target for the year and marred what is expected to be Mueller's last year as chief executive.
Mueller played down in weekend media interviews any prospects for Commerzbank to be acquired by a foreign bank.
The chairman of Italy's Intesa Sanpaolo, rumored to be casting an eye over Commerzbank, told reporters in Washington at the weekend it was not interested.