West LB faces pressure on bank mergers

City A.M. Reporter
GERMANY’S WestLB said yesterday it saw continuing pressure for consolidation in its state-backed, regional, or landesbank, banking sector, even as its major peers dismiss the need for mergers.

Chief executive Dietrich Voigtlaender said: “The landesbank sector remains under intense pressure to adapt. We have done our homework and will contribute to making the landesbank sector fit for the future.”

WestLB, Germany’s third largest landesbank, plans to return to profit in 2010, after swinging to a €531m (£461m) net loss in 2009.

The EC laid down tough conditions for approving state aid to the lenders, opening the door to long-expected mergers among the landesbanks.

WestLB said it had reduced its balance sheet and established a profitable “core” bank for continuing business, while spinning off troubled assets – which are presently worth €77bn – to a special purpose “bad bank”.

The bank’s tier one ratio stood at 8.3 per cent at the end of the first quarter, up from 6.4 per cent a year earlier.

WestLB first quarter net profit was €39m, reflecting a swing to a loss in trading, and was down from €212m in the first quarter of 2009.

“WestLB now is a profitable bank with a stable earnings basis from the business with its clients,” Voigtlaender said.

Several landesbanks, including the top two lenders LBBW and BayernLB, lost billions on risky investments during the financial crisis, forcing some to seek state bailouts and increasing pressure from politicians for the independent banking groups to merge.

Landesbanks provide wholesale banking services to the public savings banks in their area and financial observers say the country needs only two or three of them instead of seven now.