The turmoil gripping world credit markets spread to Germany yesterday, claiming another victim as one of the country’s leading small business lenders was bailed out after succumbing to financial strains from the American sub-prime mortgage crisis.
After IKB Deutsche Industriebank issued a surprise profits warning and replaced its chief executive, KfW Group, the state-owned bank that is its largest shareholder, was forced to step in. KfW, which owns 38 per cent of IKB, said that it would cover potential losses in an effort to shore up the beleaguered lender’s credit rating.
As IKB’s shares tumbled by more than a fifth, the blow to Germany’s financial sector also sent shares in other banking groups in Europe’s biggest economy tumbling.
IKB’s woes added to fears that the credit crunch sweeping America would take a firm grip across Europe, as new figures showed that filings by lenders seeking to foreclose on bad US home loans leapt by 58 per cent in the first half.
Amid mounting market anxieties, the benchmark gauge of investors’ sentiment towards European low-grade corporate debt yesterday hit the worst levels on record.
Germany’s first sub-prime casualty emerged as the mortgage meltdown continued to wreak havoc in the American financial services industry. American Home Mortgage Investment shares plunged by 45 per cent yesterday as the market digested the news that the “prime” and near-prime home-loan group would delay payment of its quarterly dividend and make what it called “major” write-downs on its loan book.
A leading consultancy, Oxford Economics, meanwhile sounded a warning that Britain’s heavy dependence on the booming financial sector for as much as half its recent GDP growth meant that the fall-out from a credit crunch could lead to wider repercussions for the economy. The consultancy estimated that were market turmoil to see the pace of expansion in financial services halve, that could knock almost half a percentage point of the economy’s overall rate of growth.
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