Reply #11: Subprime Saga: Ten days that changed the tune of IKB

[UpInArms]

http://news.yahoo.com/s/ft/20070730/bs_ft/fto073020071832547069

IKB's warning that it faced a crisis from the fallout of the US subprime mortgage market came just 10 days after it reassured the market it would not be significantly impacted by weakening property loans.


The shock warning, followed by news that subprime-related losses would cost Commerzbank EU80m ($109m), spread fear among investors that other banks could spring negative surprises and sent shares in German banks falling.

On July 20, IKB said it had enjoyed "a successful start to the financial year", repeated its earnings forecast for the year and played down reports from the credit rating agencies flagging potential problems.

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It also said it was "in no respect affected" by an analysis from Standard & Poor's of the market for collateralised debt obligations, which may include exposure to mortgages. "It is worth noticing that the bulk of our investments are in portfolios of corporate loans," it said.

On Monday, the bank had to be rescued by its main shareholder, state-owned KfW.

The crisis reminded investors that many financial institutions far away from the fast-paced world of hedge funds and investment banks' trading desks can have large exposures to risky and complex financial instruments, such as the subprime mortgage market.

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