August 25, 2007 (LPAC)--The public sector banks of Germany are the target of continued market reports--and some targeted rumors out of London over the last two days--that there is a deepening banking crisis linked to losses in the U.S. sub-prime mortgage market. The reports intensified beginning Friday August 24 in the German press, the International Herald Tribune, and the Financial Times, especially as there were admitting statements by two more state banks, HSH Nordbank and Bayern LB, that they were also engaged in the US subprime sector and potentially faced with losses. However, no figures were given.

For the bank, Sachsen LB, rumors have it that a meeting of the shareholders from the State of Saxony (37 percent) and the Saxon savings banks group (63 percent), on Sunday August 26, may decide to sell a substantial share, if not all, of the bank to the state bank of Baden-Wuerttemberg (LBBW), Germany's biggest of this type.

The move is being justified with the attempt to maintain "public" control of Sachsen LB, to protect the state bank sector in Germany from private banking take-overs. The big problem of state banks operating in high-risk markets in open disregard of their common good mandate, is not addressed with this move, however. Meanwhile, Sachsen LB admitted that another of its ABCP (asset-backed commercial paper) funds based in Dublin, Sachsen Funding I, does have a significant engagement in subprime and related sectors.