Asian subprime fears grow, Europe calmer

Three Asian banks' heavy exposure to the limping US home loan sector reinforced global credit jitters yesterday but Germany and Italy saw no signs of new problems.

Shares in Singapore's DBS Group Holdings, state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong, all skidded yesterday after they revealed a combined exposure to the US subprime mortgage market of almost $13 billion.

The news raised fears that Asian banks, generally risk averse following the Asian financial crisis 10 years ago, were more vulnerable to the crisis as investors had thought.

Stock markets tumbled from Sydney to Seoul in response, putting Asia on track for its first losing session since a major fall the previous Friday.

European stocks followed suit, the FTSEurofirst 300 index of top European shares was down 0.3 per cent at 1,504.38 points as improving confidence was also stopped in its tracks by Countrywide Financial chief Angelo Mozilo's assessment that the US economy could be dragged into recession.

German Finance Minister Peer Steinbrueck was more upbeat, saying there was no evidence that his country's banking sector faced further problems from the credit crisis, or that the liquidity crisis was wreaking wider economic damage.

Germany has so far been the hardest hit in Europe by the problems stemming from defaults on US mortgages given to people with weak credit histories.

"From today's perspective we have in Germany no indication that we're going to see further shocks in the banking sector," Mr Steinbrueck told the Rheinische Post daily in an interview. 'The experts don't expect any spillover onto the real economy."

Last month, German small business lender IKB almost folded until banks stumped up an $10.8 billion credit line to rescue it. A group of banks also gave credit of more than €17 billion to help publicly-owned lender SachsenLB survive the credit market turmoil.

Prime Minister Romano Prodi said Italy's banking system was unscathed ahead of a Bank of Italy report on Monday detailing any exposure to the subprime mortgage crisis.

"The 'tight-fisted' policy characteristic of our banks in handing out credit has had its advantages," Mr Prodi was quoted as saying by Il Messaggero newspaper.

In France, BNP Paribas said it would reopen next week three investment funds it had frozen this month, in a step that may help restore investor confidence.