DZ Bank joins ranks of German subprime casualties

By John O'Donnell

FRANKFURT (Reuters) - One of Germany's biggest financial groups, DZ Bank, joined the country's growing list of casualties from the subprime mortgage crisis on Thursday when it said the turmoil had forced it to make heavy writedowns.

DZ Bank is the central bank for Germany's roughly 1,100 cooperative banks and also links them to international capital markets.

Its role is similar to that of a landesbank such as WestLB, which acts as a window for community savings banks to the global world of finance. Landesbanks have also been hard hit by the financial market ructions.

Now DZ Bank has unveiled 1.36 billion euros ($2 billion) of writedowns on the value of subprime-linked investments.

And it warned that worse could follow because of rating agency downgrades on investments and a deterioration in the market for this kind of debt at the start of this year.

DZ Bank still has a portfolio of risky debt investments of 26 billion euros, almost 3 billion euros of which is in subprime mortgages.

"It is very difficult to make a prediction for the current year," Chief Executive Wolfgang Kirsch told journalists at a news conference.

Germany has been one of the countries worst affected by the global credit crisis, which was triggered when subprime (high-risk) U.S. home owners started to default on their mortgages.

It pushed company lender IKB and state bank SachsenLB to the brink of collapse before both were saved by last-minute rescues.

The tumult also savaged the country's landesbanks such as BayernLB, regional lenders which are party owned by local government.

The subprime domino effect in Germany has undermined the image of the country's banking industry abroad and made international investors nervous.

Last week, the euro was rattled when a top German politician remarked that the country's landesbanks were in crisis.