German bank WestLB to offload more assets: source

14th February 2011, Comments 0 comments

Regional German bank WestLB plans to cut its assets by another 30 percent to satify European officials tracking state aid to the troubled institution, a source close to the matter told AFP Monday.

"The restructuring plan foresees a new reduction of the bank's assets by around 30 percent across all sectors of activity," on top of a 2008 plan that already aimed to cut the bank's assets by half, the source said.

Ongoing talks between West LB's owners, which include regional savings banks and the German state of North-Rhine Westphalia, and the federal government would also focus on a back-up plan in case European Competition Commissioner Joaquin Almunia rejects the restructuring proposal, the source added.

The owners of WestLB and the federal government must on Tuesday submit to the EU Commission a plan to restructure the bank and candidates ready to take it over.

Media reports have identified them as the US investment funds Apollo, JC Flowers and Lone Star.

WestLB got into trouble through risky investments in the US real-estate market that went sour in 2007, and has depended on state aid since then to stay in business.

The EU Commission approved the aid but demanded the bank be restructured and either made viable or sold off.

If Brussels is not convinced by efforts to turn WestLB around, the Commission could order it be undone. Regional savings banks might establish a new entity with part of the bank's assets while others could be sold at auction.

The rest, essentially risky assets such as bad loans, are being placed in a "bad bank" to be disposed of later when market conditions were more favourable.

The cost of creating the bad bank had been higher than foreseen however, with the Commission estimating the total amount at around 6.95 billion euros ($9.37 billion).

WestLB has already transferred assets with a nominal value of around 77 billion euros into the entity, but extra state aid it needed to do so set off another equiry by the Commission.

The additional aid was finally approved, in exchange for further restructuring of the bank.

© 2011 AFP

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