More Toxic U.S. Assets To Hit German Banks

Major German banks have so far written off only around a quarter of the nearly 300 billion euros ($397.7 billion) in toxic U.S. assets on their books, Der Spiegel magazine reported, citing a survey of 20 big lenders.

That means banks face more huge losses as they mark down the value of U.S. assets backed by mortgages and student loans, the magazine said on Saturday, reporting on a study prepared for the government by the Bundesbank and markets regulator BaFin.

The finance ministry in Berlin assumes that the entire German banking sector is carrying around 1 trillion euros of risky assets on its books, the magazine said.

A spokeman for the Finance Ministry said it believed banks still had "significant amounts" of risky assets but declined to confirm the figures in the report.

BaFin had no comment on the report, while officials at the Bundesbank were not immediately available.

The government has already set up a 480 billion euro rescue fund to provide fresh capital or lending guarantees to the financial sector, but calls have been mounting for creation of a "bad bank" that would buy up banks' risky assets.

The government has resisted the idea.

Finance Minister Peer Steinbrueck was quoted by the Frankfurt Allgemeine Sonntagszeitung weekly newspaper as saying he could "not imagine (such a step) economically or above all politically".

A bad bank would need to be financed with 150 billion to 200 billion euros of taxpayer funds, he said. "How am I supposed to present that to parliament? People would say we are crazy."

Steinbrueck said no one could predict whether the rescue fund would need to be expanded given mounting losses at banks, but noted it still had room to distribute more money.

It has already committed 100 billion of the 400 billion set aside for loan guarantees and 18 billion of the 80 billion earmarked for capital injections.

Berlin has already taken a blocking minority stake in the country's second-biggest lender, Commerzbank, in return for state aid.

Parliamentary and financial sources have said Berlin is poised to take a direct stake in stricken investment bank Hypo Real Estate as well.