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Last Updated: Tuesday, 28 August 2007, 16:59 GMT 17:59 UK
Sub-prime stricken Sachsen probed
LBBW headquarters
SachsenLB was hastily sold to LBBW at the weekend
German prosecutors have said they are investigating the possibility of irregularities linked to the near-collapse of Sachsen Landesbank.

The state lender is being taken over by Germany's biggest regional bank Landesbank Baden-Wuerttemberg (LBBW) in a deal worth 250m euros (169.7m).

It is exposed to US sub-prime mortgage debt, making it one of Europe's biggest victims of the current credit crisis.

Sub-prime mortgages are offered to people with inferior credit ratings.

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There has been a large number of defaults on such loans as a result of rising US interest rates and the depressed housing market.

Fears that European banks may have huge liabilities stemming from sub-prime related investments prompted the European Central Bank to pump billions into the eurozone's banking system earlier this month.

This followed a period of heavy volatility on stock markets around the world amid fears of a global credit crunch.

News of Sachsen's troubles emerged a week ago when the firm said it received a 17.3 billion euros credit line from other banks to help it counter risk from the sub-prime exposure of an Irish-based unit.

Prosecutors in Leipzig, where the lender is based, are checking whether there are any issues that require further investigation, their spokesman said.

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