EZA 810 Report:

18 September 2007

GERMANY
US impact on the German financial market German banks involvement in the US-housing market – with SPV capital obligations of € 140 bn – can be seen as a consequence of a weak national lending environment Involvement seems concentrated on a few firms – like IKB and Sachsen LB – with Landesbanks disproportionately represented. The impact on domestic bank lending should be limited. The expected improvement in building activity is likely to outweigh the US related impact on bank lending capacity. The credit tightening – together with ECB policy – is likely to accelerate the process of business consolidation, notably in the public Landesbank sector.

Asset conclusions: Near term German bank stocks remain vulnerable to negative news flow from the US. Longer term highly beneficial consolidation should boost bank stocks.

© Graham Bishop