Worse from West

22 January 2008 By Mike Verdin

Subprime and trading losses weakened the German bank s capital. Its owners have pledged to provide E2bn. But Moody s has downgraded some of the debt by five notches. That s bad news for the public sector shareholders, who have been tarting WestLB up for sale.

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Moody's, the rating agency, downgraded WestLB's highestyielding debt by up to five notches after the German bank announced losses and writedowns of up to E2bn.

Moody's cut the rating on WestLB's hybrid bonds by four notches to Caa1. The rating on the bank's deeply subordinated Genussscheine debt was cut by five notches to B3.

Moody's said the downgrades reflected the bank's expected losses and expectations of diminished shareholder backing for further cash injections into WestLB.

The bank's biggest investors the state of North Rhine Westphalia and the WestphaliaLippe and Rhineland savings associations – on January 21 said that would inject up to E2bn into the bank to cover losses and writedowns. WestLB forecast a loss of E1bn for 2007 and a further E1bn in writedowns on subprime investments.

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