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The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the U.S. total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month.
<http://www.lemonde.fr/web/article/0,1-0@2-3234,36-941293@51-893669,0.html> Le système bancaire mondial est affecté par la crise de l'immobilier américain LE MONDE | 02.08.07 | 13h23 • Mis à jour le 02.08.07 | 15h16
Par un effet domino, la crise du marché immobilier américain semble aujourd'hui menacer la stabilité du système bancaire mondial. En Allemagne, les graves difficultés de la banque IKB, liées à ses investissements aux Etats-Unis, ont provoqué un mouvement de panique à Berlin, au point d'obliger le ministre des finances, Peer Steinbrück, à interrompre ses vacances. Selon le quotidien Handelsblatt du 2 août, Joschen Sanio à la tête du régulateur boursier allemand, la BaFin, estime que son pays est "menacé de la plus grave crise financière depuis 1931".
World Banking System Affected by American Real Estate Crisis
By a domino effect, the crisis of the American real estate market today seems to threaten the stability of the world banking system. In Germany, serious difficulties of IKB Deutsche Industriebank AG, related to its investments in the United States, caused a panic in Berlin, to the point of obliging the Minister of Finance, Peer Steinbrück, to cut his vacation short. According to the 2 August issue of the Handelsblatt newspaper, Jochen Sanio, head of the German financial regulator BaFin [Bundesanstalt für Finanzdienstleistungsaufsicht, Federal Financial Supervisory Authority], thinks that his country "is threatened by the most serious financial crisis since 1931."
<http://www.reuters.com/article/bankingfinancial-SP/idUSL0288968420070802> Germany's IKB has $24-bln subprime exposure-source Thu Aug 2, 2007 9:21AM EDT
(Adds comment from source, more detail, background)
By John O'Donnell and Jonathan Gould
FRANKFURT, Aug 2 (Reuters) - Banks funding the rescue of Germany's IKB (IKBG.DE: Quote, Profile, Research) expect it to lose up to a fifth of its roughly 17.5 billion-euro ($24 billion) exposure to the troubled U.S. sub-prime mortgage market, a source familiar with the plan told Reuters on Thursday.
German banks have clubbed together to provide 3.5 billion euros to cover IKB's potential losses from the sub-prime crisis. The source said this represented expected losses amounting to one fifth of the bank's exposure.
"The worst case possible is, naturally, that the market collapses and nothing is realisable. Or you might lose nothing. You can't be sure. But 20 percent is a realistic assessment," the source, who asked not to be named, said on Thursday.
IKB, a lender to small- and mid-sized companies, has become Europe's most high-profile casualty so far of the crisis in the U.S. sub-prime mortgage market. Its troubles have sparked investor fears that other German banks, too, might be infected.
IKB's problems last weekend prompted German financial watchdog Bafin to warn a collapse of the bank could trigger Germany's worst financial crisis in more than 75 years.
News of the scale of IKB's exposure sent its stock price into a spiral, and its share price was down a quarter on Thursday alone. The crisis has wiped about more than 40 percent off the bank's market capitalisation so far this week.
Germany's central bank chief late on Wednesday sought to calm markets, saying IKB's problems were isolated. "The exposure of German banks in the U.S. real estate market is manageable and limited overall," Bundesbank President Axel Weber said.
And there were signs that IKB's creditors were growing more confident after the rescue package put together by German state bank KfW -- which owns 38 percent of IKB -- and the country's banking association. IKB's five-year credit default swaps were unchanged on Thursday from late Wednesday.
"Everyone's calming down about the story," one debt trader said. "They're realising that KfW is going to see them through, plus the rest of the market's tightening."
CREEPING UP Default rates on mortgages to high-risk or sub-prime borrowers in the United States have been creeping up, following years of low interest rates and loosening credit standards.
This has led to problems for the banks doing the lending as well as those sharing the risk, culminating in the recent crisis.
KfW earlier this week put up over 8 billion euros to shield IKB from claims in a multi-billion euro investment fund it managed, giving IKB leeway to unwind its exposure to sub-prime lending in an orderly fashion.
The European Commission said on Wednesday it would take a close look at the KfW rescue deal to be sure it did not violate competition and state-aid rules.
Prior to a shock profit warning on Monday and the sudden departure of its chief executive, IKB had done little to outline its involvement in U.S. sub-prime lending, which had traditionally been a profitable area of investment.
IKB on Thursday declined to comment on a report in German daily Die Welt that members of its non-executive supervisory board were also unaware of the scale of the bank's involvement.
((Reporting by Jonathan Gould, Patricia Nann, Hans Nagl, Maya Thatcher and John O'Donnell, editing by Paul Bolding, Greg Mahlich; e-mail: john.odonnell at reuters.com; tel +49 69 7565 1273))
($1=.7317 Euro) Keywords: IKB RESCUE/ Keywords: IKB RESCUE/ -- Yoshie