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BERLIN : Germany's biggest regional bank said Friday it is raising fresh capital, eyeing a government rescue package and mulling merging with another state lender reeling from the financial crisis.
Landesbank Baden-Wuerttemberg (LBBW) said its owners -- the southwestern state of Baden-Wuerttemberg, the city of Stuttgart and local savings banks -- would provide five billion euros (6.3 billion dollars) in fresh capital.
LBBW also said it would consider tapping Chancellor Angela Merkel's 480-billion-euro banking rescue package to secure between 15 and 20 billion euros in loan guarantees.
"This is primarily being done in order to be able to ensure, in light of the current macroeconomic situation, a sustained supply of credit to the bank's core markets in the future," a statement said.
It added that it was ready to start "concrete" discussions about a merger with Bavaria's state bank, BayernLB, which was also been sent into a tailspin by the global financial crisis, Dow Jones Newswires reported.
Munich-based BayernLB was forced to seek an emergency capital injection of 5.4 billion euros from the federal government in Berlin plus another one billion euros from its shareholders to ensure its survival.
LBBW said it expected to record a pre-tax loss of around 800 million euros for the first nine months of 2008.
German politicians have been quick to blame "Anglo-Saxon" excesses for allowing banks to take on highly risky investments which turned sour and brought the global financial system close to collapse in September and October.
But German banks, and in particular the state-owned landesbanks, were enthusiastic participants in the boom years and have now become major casualties, forcing Merkel's government to put together its rescue package.
Merkel's measures, similar to those implemented in other European countries, includes making available up to 80 billion euros to recapitalise struggling banks and 400 billion euros in loan guarantees.
Figures from the Bank of International Settlements showed that German banks were by far the most enthusiastic when it came to lending money to Iceland, which has had to be rescued by the International Monetary Fund.
Landesbanks moved into higher-risk lending after the European Commission stripped them of state guarantees in 2005. These had given them top-notch credit ratings allowing them to borrow cheaply and undercut private rivals.
The landesbanks' woes has increased pressure on them from the government and from the local savings banks that own them, to consolidate in order to reduce costs and make them more resistant to shocks.
LBBW has already merged with the smaller landesbanks of the states of Rhineland-Palatinate and of Saxony. Merging with Bayern LB would create a southern German banking powerhouse.
- AFP /ls
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