Deutsche faces hit, funds circle Northern Rock

Profits at Deutsche Bank could be hit by up to €1.7 billion because loans have lost value due to the credit market crisis, sources familiar with the situation said yesterday.

Mitsubishi UFJ Financial Group, Japan's largest lender, warned it may have to mark down the value of some of its investments, while newspapers reported Britain's Barclays Plc was selling its subprime consumer loan unit at a loss and that buyout funds were circling Northern Rock Plc.

All have suffered in the credit squeeze that started in the US subprime mortgage market and has rattled financial markets around the globe over the past two months.

Deutsche chief executive officer Josef Ackermann acknowledged last week that the German bank was heading for a rocky third quarter, flagging a revaluation of €29 billion of credit it had promised to clients.

It would normally farm these loans out to other banks, but it has become hard to sell on the debt because of the squeeze.

German Finance Minister Peer Steinbrueck was reported to be considering calling for stricter rules on bank risk.

Magazine Der Spiegel said Steinbrueck thought one of the lessons of the global crunch was that the Basel II rules that determine how much capital banks must put aside were inadequate. There were signs here and there that credit conditions were improving, however. Australia's central bank drained liquidity from the banking system on Monday, although it warned that it was too early to rule out further market volatility.

"While conditions in global markets remain tight, the past week has seen Interbank spreads decline appreciably and some easing in funding conditions," the Reserve Bank of Australia (RBA) said in its Financial Stability Review yesterday.