Banks lead Frankfurt south, German government bullish (2nd Roundup)

Sep 15, 2008, 13:40 GMT

Frankfurt - Banking shares led a sharp decline on the Frankfurt stock exchange Monday, as European markets reacted with extreme nervousness to the bankruptcy of US bank Lehman Brothers.

Commerzbank fell most, declining 13.6 per cent to 15.11 euros by mid-afternoon, as the DAX index of the top 30 shares fell 4.0 per cent to 5987. During Monday's trading it hit a year-low of 5949.

Deutsche Bank was off 8.7 per cent at 52.29 euros, Deutsche Postbank down 8.6 per cent at 39.20 and insurer Allianz was off 8.6 per cent at 101.13. Declines in other sectors moderated through the day, with Fresenius Medical Care and business software company SAP in positive territory.

Finance Ministry spokesman Torsten Albig shrugged off the pessimism, saying the crisis triggered by the Lehman collapse was 'manageable' as far as Germany was concerned.

'German financial institutions in their totality are recognizably not as involved as US and other Anglo-Saxon institutions,' he said, characterizing the crisis as 'centrally American.'

There had been little noticeable effect on the real economy in Germany, Albig, spokesman for Finance Minister Peer Steinbrueck, maintained.

Throughout the day, experts maintained the German banking system was relatively strong and even predicted German banks could emerge strengthened.

They dismissed an unnamed analyst who spoke to German newspaper of a 'horror scenario for the markets' which had been spooked by the realization that the US government would not bail out every major bank that had overreached itself.

Veteran banking expert Wolfgang Gerke said that some banks would emerge stronger from the crisis by picking up the best parts of those going under.

'Investment banks will continue to do great business in the future,' he said.

And Martin Faust, professor at the Frankfurt School of Finance, predicted European banks would ultimately benefit.

'European financial institutions will strengthen - including Deutsche Bank,' Faust told the finance agency dpa-AFX.

'US banks will be weakened and will play a reduced role in the world,' he predicted.

Foreign Minister Frank-Walter Steinmeier, the Social Democrat (SPD) who is to challenge Christian Democrat (CDU) Chancellor Angela Merkel in elections next year said the crisis was renewed evidence of the need for more stringent regulation in financial markets.

But he denied that world markets faced a 'systemic crisis' and insisted Germany was better equipped to face the turbulence than other major economies.

The European Central Bank pumped 30 billion euros (43 billion dollars) into the eurozone money market in a one-day refinancing operation Monday to ensure adequate liquidity.

The ECB said it was watching liquidity developments in the eurozone closely and was ready to contribute to ensuring conditions for an orderly money market.

And the euro rose more than a cent against the dollar, the ECB setting its Monday reference rate at 1.4151 dollars, from Friday's 1.4066.