Germany to sell bank hit by US subprime crisis

27th August 2007, Comments 0 comments

German state to sell bank hit by US subprime crisis

26 August 2007

Berlin (AFP) - The German state of Saxony said Sunday it would sell the Landesbank Sachsen (SachsenLB), which has been hard hit by the US subprime crisis, to the Landesbank Baden-Wuerttemberg (LBBW).

A government spokesman said the regional cabinet had held an urgent meeting to agree the sale of the troubled publicy owned bank.

Earlier this month, it had to admit it had been given a 17.3-billion-euro (23.6-billion-dollar) bailout by Germany's savings banks in the wake of the crisis that plunged world markets into turmoil. It had earlier denied press reports to that effect.

The premier of Saxony, Georg Milbradt, told MDR radio that the lowest price his government was prepared to accept for SachsenLB was 300 million euros.

But the emergency buy-out could eventually cost Baden-Wuerttemberg up to 800 million euros as it might have to plough more money into the smaller bank, said the premier of the southwestern state, Guenther Oettinger.

Milbradt said the buy-out would see operations at SachsenLB return to normal.

"We promise that the support of Baden-Wuerttemberg will restore calm. Things could be back to normal on Monday. Baden-Wuerttemberg is not leaping into a black hole with this purchase," he said.

The two banks were expected to announce the sale of SachsenLB to LBBW, Germany's biggest Landesbank, at a press conference later Sunday.

The buy-out is being portrayed by the German press as the only possible way of saving Germany's smallest state-run regional bank following the damage it suffered in the subprime crisis.

The German daily Die Welt on Friday said the savings bank's lifeline turned out to be insufficient to resolve SachsenLB's liquidity woes as the bank had been in even deeper trouble than thought.

Die Welt reported that the bank lost another 400 million euros as a result of investments in the US home loans market, and quoted a source as saying it faced a clear choice between bankruptcy and a buy-out by another bank.

The shareholders of the two banks still have to approve the deal, as do the regional parliaments in Saxony and Baden-Wuerttemberg.

SachsenLB has refused to disclose the size of its investments in the subprime market or to confirm reports that it made big investments in funds held by its Irish subsidiary, which may be in trouble.

Subprime is the name given to home loans made to investors in the United States who have little or no credit rating.

Another German state bank, BayernLB, admitted on Friday that it had direct investments in the US subprime market, but said it did not experience any liquidity problems with the investments and did not expect a negative impact on its business due to the credit crisis.

BayernLB said it was directly affected through its US arm but did not disclose the extent of its investment.


Subject: German news

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