The effects of the collapsing American sub-prime mortgage market are spreading further throughout Germany after West LB Mellon Asset temporarily stopped investors making withdrawals from one of its funds and local bank, IKB Deutsche Industriebank, ousted its chief financial officer.

West LB Mellon, a joint venture owned by West LB, the German investment bank, and the Bank of New York Mellon Corp., has suspended redemptions from its Compass fund, almost 80 per cent of which is invested in mortgage-backed securities — bonds that are financed by home loan payments.

In the US, specialist mortgage lenders are seeing an increasing number of sub-prime home loan borrowers, i.e. consumers who have a poor credit rating, defaulting on their mortgage payments.

Companies that have provided mortgages to sub-prime borrowers and funds that have invested heavily in this market are now facing significant losses.

Yesterday, Volker Doberanzke resigned as the chief financial officer at IKB Deutsche Industriebank following the departure of two other ban executives: chief executive Stefan Ortseifen and Winifried Reinke, who headed asset management. It has also put together a "crisis task force" to deal with its exposure to the US sub-prime market, headed by Lutz-Christian Funke, a corporate director at parent company KfW.

Dr Doberanzke, who resigned with "immediate effect", has been replaced by Dieter Gluter.

Last week, IKB admitted that one of its funds, Rhineland Funding, had invested in groups of assets that are exposed to US sub-prime real estate loans and that its full-year earnings would be "significantly lower" than the €280 million (£190 million) forecast.

KfW, which is the controlling shareholder in IKB with a 38 per cent stake, is pouring €8.1 billion into Rhineland Funding while another IKB fund, Rhinebridge plc, will receive €80 million. IKB has now scrapped plans to pay a dividend and delayed the publication of its second-quarter results from August 14 until September 28.

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