WestLB plan could be a template for German banks: source

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The German regional bank WestLB has proposed a restructuring plan to European Union officials that could lead to a long-awaited consolidation of the state-owned sector, sources in Berlin said.

The country's third biggest regional bank, which is owned by local savings banks and regional authorities, squeaked under the wire with a plan that could see it downsized in several stages.

A source close to the matter in Berlin said it could "mark the starting point of a privatisation of the Landesbanken," as the regional institutions are known.

The global financial crisis revealed that the network of banks was the weak link in Germany's banking sector.

One part, or "drawer" of WestLB could be taken in hand by local savings banks to ensure mutual services they depend on.

Other parts could be sold to private investors, while risky assets are placed in "bad banks" to be sold later when conditions were more favourable.

EU Competition Commissioner Joaquim Almunia said his services would go over the German propositions and hold talks with German authorities on them in the coming days.

The EU Commission has approved state aid to WestLB on condition that it be restructured into a viable entity that would no longer need taxpayer's help to keep running.

Decisions by the Commission regarding WestLB "will be followed closely by the other German regional banks," IHS Global Insight economist Timo Klein told AFP.

Authorities in Berlin let it be known Wednesday that they were not prepared to put more money on the table for WestLB, which received three billion euros ($4.0 billion) in 2009 to create a "bad bank."

Since the international financial and economic crises erupted, four of Germany's eight regional banks have sopped up more than 20 billion euros in aid, mainly from regional governments that are major shareholders.

© 2011 AFP

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