State-backed German banks such as BayernLB and LBBW might be affected by the crisis in the UK.
The crisis at the British mortgage financer Northern Rock could also affect German investors and banks, SPIEGEL has learned.
As a result of the US subprime mortgage crisis, the fifth-largest British mortgage lender got into refinancing problems last week and had to be bailed out with a financial injection from the Bank of England.
Like financial institutions in the US, Northern Rock had been re-selling mortgage debt to investors for years, in the form of exotic financial instruments bearing confidence-inspiring names like Granite, Dolerite and Whinstone.
Among those investing in such securities were German investment funds, who were attracted by their generous interest rates. According to its half-year report, funds offered by the Deutsche Bank subsidiary DWS Investments have stakes in Granite, while Allianz Global Investors has funds with investments in Granite and Dolerite.
"All of these securities are suffering," Dominique Linder, an expert on asset-backed securities at Allianz, told SPIEGEL. Because Northern Rock is still responsible for processing interest revenue from the sold mortgages, "investors are now afraid that there could be disruptions there," Linder said.
According to insiders, state-backed German banks such as LBBW and BayernLB may also be affected by the Northern Rock crisis. These banks have controversial off-balance sheet investment vehicles which contain bundles of securities which are worth billions and include asset-backed British mortgages. Some of these mortgages must belong to Northern Rock, being the UK's fifth-largest lender.
Neither LBBW or BayernLB were prepared to comment on the exact composition of the vehicles when approached by SPIEGEL.
spiegel
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