The continuing meltdown in the U.S. subprime mortgage market is forcing government finance ministers and regulators in Europe to scramble to prevent financial crises across the globe.
In Europe, Germany was forced yesterday to organize a last-minute rescue of a bank that buckled as the value of its leveraged holdings in subprime mortgage bonds and derivatives tanked.
The near-collapse of IKB, a lender based in Dusseldorf, was averted only when another bank stepped in and guaranteed almost $11 billion worth of debt and loans.
The German government’s most senior financial regulators and ministers sculpted a bailout fund – with contributions from Commerzbank, Deutsche Bank and other banks – worth about $4.8 billion.
The rescue came mere days after IKB’s chief executive assured the media that its exposure to subprime was minimal.
U.S.-style subprime problems have also hit France’s Oddo & Cie., a stockbroker and money manager, which was forced to close a series of hedge funds with $1.37 billion in assets due to what it called “an unprecedented crisis” in the asset-backed securities market.
The fund was devastated when the value of its illiquid collateralized debt obligations – which are bonds made from other bonds – plunged, leaving the portfolio managers locked in to losses with little chance of finding buyers.
The problems are even worse in Australia, which is now second only to the U.S. with advanced symptoms of what Wall Street wags have dubbed the “subprime contagion.”
Macquarie Bank’s Macquarie Fortress Investments Ltd. announced this week that two of its funds are facing losses up to 25 percent after their investments in securitized loans went south in the wake of the collapse in the U.S. leveraged loan market.
A fund director said the losses are likely to lead to margin calls if the $188 million portfolios don’t reduce leverage quickly enough.
While the assets at risk are under 1 percent of Macquarie’s asset base, investors sent the bank’s shares down 11 percent in next-day trading in Australia.
Last week, two separate Australian hedge funds were forced to suspend investor withdrawals in the wake of sharp losses in U.S. bond markets.
One entity, the Basis Capital Yield Alpha fund, said it might sustain losses from its portfolio of subprime bonds of greater than 50 percent. roddy.boyd@nypost.com