[NYTr] Another German Bank Bailed Out as Credit Crunch Fallout Widens

[All the News That Doesn't Fit]

Financial Times via GATA - Aug 18, 2007
http://www.ft.com/cms/s/9e6e71ac-4d22-11dc-a51d-0000779fd2ac.html


Another German bank bailed out amid credit crunch

Sachsen LB is Bailed Out As Credit Crunch Fallout Widens

By Ivar Simensenin 

FRANKFURT, Germany -- Sachsen LB, the German publicly-owned bank,
last night became the latest victim of the current credit crisis
when the Landesbank had to be bailed out because of its exposure
to the US asset-backed securities market.

The bank, which is based in and owned by the German state of Saxony,
said the German savings banks association had stepped in and taken
over a E17.3 billion credit facility to a special investment fund,
or conduit, that Sachsen LB had funded and managed.

The conduit, called Ormond Quay, borrowed in the short-term commercial
paper market and invested in longer-term structured credit instruments.
It was supported by a credit line from Sachsen LB.

The rescue was triggered when commercial paper investors refused
to refinance Ormond Quay and Sachsen LB was unable to provide the
credit facility it had pledged.

The bailout came just one week after the bank had reassured the
market it had "sufficient liquidity" and followed the bailout of
IKB, the German lender to small companies, whose rescue three weeks
ago sparked the crisis in credit markets.

"The ongoing market disruption in selling asset-backed commercial
paper resulted in there being doubt on securing funding for the
Ormond Quay conduit supported by Sachsen LB with a volume of E17.3
billion ($23.2 billion). As a result, the credit standing of Sachsen
LB has been called into question," the bank said in a statement
last night.

The Sparkassen-Finanzgruppe, the savings banks association, provided
the credit facility of E17.3 billion to secure the liquidity at the
Ormond Quay conduit. The bank said the facility made it able to
fulfil its financing obligations resulting from the other conduits
it supports, such as Georges Quay and Sachsen Funding, "at all
times."

The rescue was an embarrassing step-down for the bank, which only
one week ago publicly reassured investors of its position in the
market, following speculation about Ormond Quay. On August 10 Sachsen
LB said it saw "no indications" for increased probability of default
for the ABS structures managed by its subsidiary.