German state-backed lender LBBW said today it is largely sheltered against market turbulence triggered by problems in the US subprime mortgage sector.
The bank said its volume in that sector is minimal compared with total business volume, although Germany's biggest landesbank, with total assets of around €430 billion at the end of 2006, declined to give a figure for the exposure.
Like some other regional landesbanks in Germany, LBBW sponsors an offshore financing conduit that issues commercial paper to finance investments in asset-backed securities.
LBBW has said its Lake Constance Funding conduit has around €6.7 billion in commercial paper outstanding. Lake Constance had €299 million in partial and indirect exposure to subprime investments.
LBBW's subprime-related investments were almost entirely "AAA" rated or insured through an insurer with a "AAA" rating, the bank said.
Its conservative investment policy and internal risk controls put it in a good position to deal with market turbulence, it added.
Two German banks faced collapse over their exposure to investments linked to the subprime mortgage lending market in the United States and had to be rescued.
One of the two, SachsenLB, agreed to be taken over by LBBW at the weekend in a hastily arranged bailout in which LBBW provided €250 million of immediate funding, with a final purchase price to be set later this year.
SachsenLB will become a subsidiary of LBBW from January next year.