Irish-Based Firms Spark Bank Crisis; Exposure: Repackaged Sub-Prime Loans in the U.S. Real Estate Market Are Causing Instability
Byline: JOE DOWNES
THE near collapse of two Dublin-listed fund management companies and thecollapse of ISE-listed SCC, leaving debts of some E300m, has sparked a majorcrisis in the German banking system.
A German provincial stateowned bank has been sold and a second bank faces aratings downgrade as their Dublin-based investment fund companies came close tocollapse.
The crisis has shone a spotlight on the so-called 'conduits' or off balancesheet investment vehicles that are used to invest in the once-lucrative, butnow crisis-hit U.S. sub-prime mortgage market.
The same light is now being pointed towards Dublin, home to several suchvehicles, and how they are regulated here.
The Landesbank Sachsen was bought for around E300m on Friday by another state-owned lender, the Landesbank Baden-W*erttemberg, according to reports in theGerman media over the weekend.
A consortium of German banks was forced last week to throw a financial lifelineof E17.3bn to the Landesbank Sachsen after it was unable to cover the debts ofOrmond Quay, an investment fund under its management in Dublin.
It was the second German bank that had to be bailed out after exposure tocredit markets caught in the fallout from the U.S. housing market crisis.
The IKB bank - a relatively small financial house that lends to medium- sizedbusinesses - was subject to a E3.5bn rescue operation last month by thestate-owned KfW - a bank set up immediately after World War II to financeGermany's reconstruction.
Meanwhile, Landesbank Sachsen has denied German media reports that its exposurethrough Ormond Quay amounts to an obligation of as much as E65bn in investmentsand credit guarantees to off-balance-sheet units. …