Shareholders will bail out WestLB with a €1billion (£743 million) injection after the German bank told the market yesterday that it was heading for a €1 billion loss for 2007.

WestLB, which gained notoriety for backing aggressive buyout deals, said that it would write down a further €1 billion of assets in the wake of the global credit crisis.

The bank's announcement yesterday came amid a day of bad news for European banks.

Commerzbank, of Germany, told investors that the plunge in the value of its sub-prime mortgage investments would hit its 2007 profits.

Analysts punished Dexia, the Franco-Belgian bank, which yesterday outlined its exposure to Ambac, the troubled American bond insurer that lost its AAA credit rating on Friday.

Dexia said that it and FSA, its bond insurance unit, had indirect financial exposure to Ambac.

Meanwhile, Société Générale stock continued to fall after its management did not deny rumours that emerged last Friday that the French bank was about to announce substantial sub-prime-related losses.

Shares in French banks were pushed down by bearish notes from Credit Suisse and Bear Stearns.

Credit Suisse said that it saw “risks accumulating” in the sector, while Bear Stearns predicted further writedowns caused by the liquidity crunch.

Bafin, the German financial watchdog, and the Bundesbank, Germany's central bank, attended an emergency meeting with the owners of WestLB on Sunday to examine how to stablilise the lender.

The bank had announced a €116 million pre-tax loss for the first nine months of the year and previously had said that it expected a low three-digit million loss for the full year.

The bank said yesterday that the writedowns on its portfolio were not permanent, but in a letter to workers, Alexander Stuhlmann, its chief executive, did not rule out further charges because of the continuing instability in the credit markets.

WestLB said yesterday that its owners — local community savings banks and the state government of North Rhine-Westphalia — would foot the bill for its losses.

The bank said that it had agreed with shareholders to undergo restructuring, but denied reports that it planned to cut 2,000 jobs.

WestLB said that it had almost implemented a ten-point plan, but declined to give further details.

The bank said that it would announce shortly how the cash injection would take place.

“The exact form of the measures and their timetable will be decided rapidly,” a WestLB statement said.

Next month WestLB is scheduled to enter talks with Hessische Landesbank, another state bank, over a possible merger.

The move by WestLB's shareholders should prevent the deal from being scuppered by the expected 2007 losses.

At Commerzbank, Martin Blessing, the chief executive-designate, said that he did not expect the bank's writedowns for the fourth quarter to be as bad as those in the previous three months.

The bank took a €291 million charge on €500 million of subprime-related writedowns.

Mr Blessing refused to rule out further writedowns in 2008. “Nobody can say if that's it,” he said.

German banks have taken some of the greatest hits in the global market turmoil resulting from a collapse in America's mortgage market.

The German Government was forced to provide aid for three banks: IKB Deutsche Industriebank, SachsenLB and WestLB.

WestLB is best known for its association with Robin Saunders, once one of the City's most high-profile private equity investors.

The German bank is embroiled in a court case in which it is being sued by Natixis, a French bank, over one of Ms Saunders's deals — the 2003 securitisation of Boxclever, a television rental business.

Last night it was close to agreeing a settlement.

Natixis lost about £100 million on Boxclever after the company defaulted on its debt payments only a year after the refinancing was agreed.

Ms Saunders left WestLB in 2003.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax