WestLB, a German bank, has had to provide support to a high-risk affiliate fund in Ireland after it came under pressure amid turmoil in international credit markets, writes Arthur Beesley, Senior Business Correspondent.
The Dusseldorf-based bank is understood to have provided fresh liquidity in recent times to Compass Securitisation, an off-balance sheet conduit which has €6.2 billion in credit facilities.
A WestLB spokesman declined to quantify the amount of new liquidity provided by the bank. The fund in question has "grandfather rights" to long-term liquidity lines from WestLB. The fund does not have credit issues, it is understood.
Compass is among a number of Irish-registered vehicles, unregulated in Ireland, in a sector that has come under international scrutiny following the deterioration in the value of securities backed by subprime mortgages in the US.
WestLB's spokesman indicated that the institution has minimal exposure to subprime problem, which has convulsed international markets.
"Including liquidity commitments, the total volume of our subprime- related exposure is equivalent to roughly half a per cent of total assets.
"Like other banks, WestLB has conduits containing customer and trade receivables which, although they have nothing to do directly with US real estate, have nevertheless come under pressure from the funding side.
"In the event that, in the current market situation, individual conduits and vehicles are temporarily unable to raise sufficient liquidity from third parties, WestLB has the possibility - given its excellent liquidity position - to secure the funding of these vehicles and conduits."
The spokesman said WestLB had a "distinctly large" liquidity reserve, stating that its balance was highly liquid and was able to cover potential outflows of liquidity.
News that Compass has come under pressure follows the near-collapse last week of SachsenLB, the state bank of the German state of Saxony, due to a €3 billion subprime exposure in one of its Irish funds. It was only with the help of a €17.3 billion rescue package from a group of German banks that Sachsen survived. However, Sachsen indicated last night that it might have to liquidate a related Irish fund - Sachsen Funding I Ltd - which has $450 million (€332 million) in securities.
The disclosure comes only six days after Sachsen said the refinancing funds available to it meant it would be "at all times" able to fulfil its financing obligations to Sachsen Funding and another conduit it supports.
"If current market conditions persist, the Sachsen Funding I transaction will likely be forced to deleverage through asset liquidation in order to meet maturing ABCP [ debt] which cannot be rolled," the bank said.
"SachsenLB Europe plc, acting as collateral manager, is currently looking at various options in relation to the Sachsen Funding I transaction, including either the deleveraging or restructuring of the transaction."
Separately, the Irish Stock Exchange said it has temporarily suspended 16 funds listed on the Irish exchange over their failure to provide annual reports.
At least one of those funds - Avendis - has fallen victim to volatility arising from the subprime issue.
"It is not unusual that individual funds will occasionally encounter delays in the filing of their annual reports," said a spokesman for the exchange. "These are typically resolved within a matter of weeks and the suspension lifted accordingly. The exchange has no reason to believe that the failure of these funds to file accounts reflects more significant problems with those funds."
