Senior bankers yesterday warned that Germany's biggest banks fear their profits will be hit hard by their involvement in international hedge funds, their exposure to emerging markets and the crisis in Japan.

The warning came as shares in the main banks slumped to their lowest levels of this year. The president of Germany's banking supervisory authority also warned that the institutions would have to raise their risk provisions because of their international exposure.

Shares in Deutsche Bank, Bayerische HypoVereinsbank, Dresdner Bank and Commerzbank all dropped heavily after a warning from Mr Bernhard Walter, Dresdner chief executive, that his bank's thirdquarter results would be hit by writedowns and risk provisions relating to Russia, south-east Asia and Long-Term Capital Management. "It won't just be Dresdner, mark my words," said one senior banker in Frankfurt. "All the three big banks in Frankfurt - Deutsche, Dresdner and Commerzbank - are worried. They got involved in the risk business, but they didn't know enough about it."

German banks, traditionally famous for their cautious lending practices, had ventured into highrisk activities with US-based hedge funds partly because political obstacles made it difficult for them to expand inside Germany, he said. Another banker said that, apart from hedge funds, it was the crisis in the Japanese financial system, rather than problems in the rest of Asia or Russia, that was increasingly worrying the big German banks.