This thing is global baby

It seems every other day we are hearing of something affected by the meltdown in the US sub-prime mortgage market. The latest comes from Germany:

IKB stock slumps after warning on subprime impact
German bank won't meet its forecast; CEO retires

By Robert Daniel, MarketWatch
Last Update: 6:52 AM ET Jul 30, 2007

TEL AVIV (MarketWatch) -- IKB Deutsche Industriebank AG shares dropped 18% on Monday as the German lender acknowledged losses from its exposure to the U.S. subprime mortgage market, in yet another indication how Americans failing to pay back risky mortgages affects markets worldwide.

IKB's earnings will be "significantly lower" than the 280 million euros ($383.5 million) that it had forecast, the bank said in a statement.

Rhineland Funding, which IKB manages, and to a lesser extent IKB itself have invested in structured credit portfolios. These portfolios include exposures to U.S. subprime real estate loans, which are mortgage loans made to borrowers with poorer credit histories.

IKB said that "spreads widened sharply during last week's violent fluctuations, causing massive uncertainty amongst institutional investors."

Stock markets around the world tumbled last week as several bond deals, including those backing the sale of 80% of Chrysler and the Allison Transmission division of General Motors, failed to get sold to investors.

The struggles in placing bonds came after some hedge funds, including two managed by a Bear Stearns unit, suffered heavy losses from investing in subprime loans, which are loans made to borrowers with poorer credit histories. Defaults have climbed on the back of interest-rate rises and stagnating house prices.

Few defaults

Despite "market discounts affecting the valuation of such assets," IKB said, "to date there have been few loan defaults, and only some rating downgrades affecting portfolio investments.

Nevertheless, towards the end of last week, IKB's creditworthiness was being questioned due to said exposures. There was a risk that this confidence crisis would deteriorate further."

KfW, a German state-backed development bank which holds 38% of IKB, took steps to safeguard IKB's creditworthiness, IKB said, including assuming certain of IKB's financial obligations and protecting IKB against risks resulting from certain portfolio investments.

"These measures will maintain IKB's strong creditworthiness, in particular in its banking business with German medium-sized businesses," IKB said.

IKB said its supervisory board named Günther Bräunig, a member of the bank's board of managing directors, to the post of chief executive. He succeeds Stefan Ortseifen, who retired.

Shares of IKB dropped 18% to 17.69 euros, its lowest level since December 2003.