City A.M. Reporter
GERMAN state-backed bank WestLB expects earnings in the fourth quarter of 2009 to be below average, mainly because of the cost of restructuring to hive off assets into an €85bn (£76.2bn) “bad bank”.<br /><br />In an update ahead of its fourth quarter results, the bank said all the decisions on splitting the bank into a core operation and a ring-fenced bad bank were due to be made by the end of November.<br /><br />It has already had €6bn of assets guaranteed by German bank rescue fund Soffin in the first step of the plan, for which WestLB provided a pro-rata counter guarantee of €4bn. The entire portfolio is expected to be ring-fenced by 30 April 2010, with retroactive effect as of 1 January 2010.<br /><br />Chairman Dietrich Voigtländer said: “With the agreements signed in September, we have now passed an important milestone in reducing our risk and streamlining the balance sheet significantly. <br /><br />“We are currently engaged in constructive talks regarding a permanent ring-fenced solution, which are due to be concluded by the end of November. The core bank, which will focus on profitable business with customers, is now beginning to take shape.”<br /><br />It posted pre-tax profits of €262m for the first nine months of the year, down from €604m for the same period last year. However last year’s figures were boosted by the transfer of €962m impaired structured securities portfolios to a special purpose vehicle, the bank said.<br /><br />This year’s figures had been hit by impairment charges but cutting administrative expenses by 17 per cent boosted operating income by 39 per cent year-on-year to €1.7bn.