Dresdner revealed a €575m credit crunch loss today as Merrill Lynch disclosed its exposure has topped $27bnBy Miles Costello
November 9, 2007
SourceFresh concern over a new round of credit losses emerged today as German group Dresdner took a €575 million (£400 million) hit against its market exposure, the latest international banking player to suffer fallout from the summer's financial rout.
It came just a day after Wall Street heavyweight Merrill Lynch revealed that its total exposure to highly geared investments and American subprime mortgages was $27.2 billion, a full $6.3 billion more than it told regulators was the case last month.
Merrill last week deposed its chief executive, Stan O'Neal, in a move seen as turning the spotlight onto rival bank bosses in both Europe and the US.
The bank also confirmed that American regulators at the Securities and Exchange Commission had begun an investigation into issues surrounding its sub-prime mortgage portfolio.
There is no suggestion of any wrong-doing on Merrill's part. It is co-operating with the SEC.
Shares in Barclays and Royal Bank of Scotland have continued to tumble in recent days on fears of rising yet-to-be-disclosed losses.
But executives at Allianz, Europe's largest insurer and the owner of Dresdner, sounded an upbeat note today.
Helmut Perlet, Allianz's chief financial officer, said: "The stable operating result shows that we will achieve our earnings targets for 2007 despite the difficult capital market environment.
"We will continue to pursue our policy of robust risk management, as well as enhance the quality and efficiency in all lines of business."
Shares in Allianz, the parent, fell more than 1.5 per cent, down €2.19 at €141.38, despite the insurer posting a 20.7 per cent increase in after-tax profits to €1.92 billion.
Dresdner said "financial market turbulence" in the third quarter led it to slash valuations in its trading book for asset-backed securities by €350 million.
It said it had faced trading exposure of a hefty €18 billion to asset backed securities, including highly geared credit products such as collateralised debt and loan obligations.
It said it had managed to use hedging techniques to limit its economic exposure to €7.9 billion.
A further €195 million of the losses related to "indirectly affected business lines", the bank said.
It booked a €30 million loss to cover losses on €5 billion worth of leveraged buyouts it had agreed to back.
Dresdner becomes the latest European bank to provide the gruesome details of its losses following a three month credit market rout inspired by soaring default rates among sub-prime American mortgage borrowers.
Valuations of mortgage securities traded in the wholesale markets have collapsed, leading Deutsche Bank, UBS and Credit Suisse to report credit-fuelled and investment banking losses.
Dresdner said operating revenues at the bank tumbled by almost a quarter to €1.2 billion for the three months from July to the end of September.
The German bank's credit woes masked strong performances elsewhere at the bank, including a 9.2 per cent increase in fee and commission income to €689 million.
It said its investment bank, Dresdner Kleinwort, was pulling in higher fees from advising on merger and acqusition deals but it said margins were under pressure in its private client division's loan business.
Allianz said operating profits over the nine-month period rose by 7.8 per cent to €8.76 billion on total revenues of €23 billion. Operating profits from the life assurance and asset management businesses were both showing double-digit growth, the insurer said.
William Hawkins at Keefe, Bruyette & Woods, said Dresdner's results were "nothing to be proud of", but should allay concerns in a market that had speculated the losses could be higher.
"There are clearly going to be many other questions on this subject but the bottom line in our opinion is that Dresdner Bank has had a bad quarter, but not a business-critical one," he said.