Friday, March 27, 2009

WestLB owners plan sell-off

In the Financial Times by James Wilson:

WestLB’s owners plan to put the bank up for sale through an auction that could herald a wider shake-up of Germany’s state-owned Landesbank sector.

The bank expects the offer to satisfy a promise to the European Commission to seek a change in its ownership, a condition of state aid given last year to help the bank through the financial crisis.

A competitive auction would bring the prospect of wider private sector involvement in Landesbanken. Only one – HSH Nordbank, which, like WestLB, has struggled with toxic assets during the financial crisis – is partly held by private investors.

However, the last such auction, of Landesbank Berlin, ended with German savings banks paying a substantial price to keep the bank in state-owned hands. It also took about five years, suggesting that any change at WestLB is far from imminent.

Heinz Hilgert, WestLB’s chief executive, said the auction would not preclude attempts at consolidating Germany’s seven regionally controlled Landesbanken. Mr Hilgert said it was not possible to say when an auction might start.

The Commission has demanded that WestLB present a restructuring plan by the end of the month, including ownership changes. Attempts to engineer a merger of WestLB with other Landesbanken have foundered, which WestLB said was partly because of the tight timetable demanded by the Commission, at a time when possible buyers are fearful of acquiring any problems on other banks’ balance sheets.

The bank, which has a balance sheet of €288bn, is owned by North Rhine-Westphalia, Germany’s most populous region, along with local savings banks. It is best known internationally for project and structured finance.

The Commission said it had not been formally notified of WestLB’s restructuring plan. But the bank has been in a long dialogue with Brussels, meaning WestLB is unlikely to be in any doubt about the stance of Neelie Kroes, the competition commissioner.

An auction could replicate solutions found in some other long-running state aid cases.

WestLB ring-fenced €23bn of toxic assets a year ago into a separate vehicle underwritten by its owners – a step that led to the state aid case with Brussels. It plans to split off a further €80bn portfolio of non-core assets – one of several such plans from German banks, which could form the basis of a wider national “bad bank” scheme to manage unwanted or toxic assets.

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