NordLB boss warns of tough times for German regionals

THE CHIEF executive of German regional bank NordLB has warned that banks are yet to see their most challenging period of the credit cycle.<br /><br />Despite NordLB making a &euro;151m (&pound;133m) profit last year, Gunther Dunkel, chief executive of the Hanover-based lender, predicted that the next two years would be &ldquo;very interesting&rdquo;, particularly with regard to &ldquo;underestimated&rdquo; risks taken by the Landesbanken.<br /><br />German banks have been among those worst hit by the economic downturn, with many making investments in bad assets that are now proving toxic.<br /><br />The government has come up with a scheme to rectify the situation in which banks channel their toxic assets into a &ldquo;bad bank&rdquo;.<br /><br />But Dunkel said he did not believe that this was the answer, given the hefty upfront fees that the banks would be forced to pay in order to participate in the scheme.<br /><br />The chief executive also rejected the German government&rsquo;s plan to merge various regionally-owned Landesbanken such as NordLB.<br /><br />The government is keen to push the mergers and has issued thinly-veiled threats that those banks in need of help with their toxic asset burden will only receive aid by complying with the plans.