Agence France-Presse . Frankfurt

The international banking crisis has cost the German Dresdner Bank dearly, and more troubles may lie ahead, directors said Thursday.

Dresdner's parent group, the insurance company Allianz, thought it would escape the worst of the turbulence created by a collapse of the US market for high-risk mortgages, but annual results laid bare the extent of damage at Dresdner Bank.

The third biggest private German bank posted a net loss of almost 600 million euros ($885m) in the fourth quarter of 2007. For the full year, Dresdner Bank was in the black, but profit fell by 59 per cent to 366 million euros.

The bank, like many others, paid the price for heavy investments in the US subprime market and was forced to write down 1.5 billion euros in assets last year, including 900 million in the fourth quarter. And it is not over yet. 'More write-downs cannot be ruled out in 2008,' Allianz chairman Michael Diekmann told a press conference in the Bavarian capital Munich.

Allianz has already estimated them at 300-400 million euros in the first three months of the year if financial market conditions remain troubled, said Helmut Perlet, director of risk management and accounting at the insurance group.

To stem the damage, Dresdner Bank will limit activities in so-called structured investment vehicles, or SIVs, funds that use short-term loans to try and earn money with longer-term high yield assets. It will also reduce its exposure to structured credit products such as securities that are backed at least in part by home loans.

The bank nonetheless said Thursday that it would provide undisclosed support for its K2 investment fund to ensure that the SIV, hit by the US home-loan subprime crisis, could repay loans. Dresdner said that K2, which is managed by the investment bank division Dresdner Kleinwort, currently had investments worth 18.8 billion dollars, down from 31.2 billion in July 2007. Dresdner Kleinwort, meanwhile, would cut 450 jobs from a total workforce of around 6,000.

The change in tone from mid 2007 was striking, when Diekmann said the emerging subprime crisis would have only a 'relative impact' for Allianz. On Thursday he said: 'I must be particularly careful regarding our outlook for the banking sector.' It was impossible to offer a serious prognosis, the Allianz boss said.

At the end of last year, Allianz's exposure to funds comprised of asset-backed securities, one of the instruments most affected by the subprime crisis, was still 9.2 billion euros, including 2.9 billion that was considered to be 'at risk.'

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