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Sub-prime will hit global economy: bank CEO

(FRANKFURT) Global economic growth will take a hit as a result of the US sub-prime mortgage crisis, says the chief executive of Deutsche Bank, Germany’s biggest bank.

‘Growth, especially of private consumption in the United States, will suffer because of the housing crisis and that can naturally not go without negatively affecting the world economy overall,’ Josef Ackermann said in a guest column to be published in the German business daily Handelsblatt today. The daily made a summary of the column available to other media at the weekend.

Mr Ackermann said that many banks and investors affected by the credit market turmoil that arose in the wake of the sub-prime crisis had apparently taken risks that exceeded their size and risk-bearing capacity.

‘This is, to say it clearly, above all negligence on the part of the managements of these houses,’ he said. The distribution of credit risks in the international financial system had not been transparent to supervisory authorities and market participants, Mr Ackermann said.

Deutsche Bank has shut down its proprietary credit trading desk in London and is laying off some of the 14-strong team, a source familiar with the matter said on Friday.

Earlier last month a source close to Deutsche Bank told Reuters the bank was set to ditch its credit relative value trading strategy used by the London proprietary trading desk after losses of about US$135 million.

Deutsche Bank has declined to comment.

Two German banks, SachsenLB and IKB, have been bailed out after running into trouble due to their exposure to US sub-prime mortgages.


Source: Reuters (Business Times 3 Sept 07)

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