If no buyer for the whole lender can be found -- and at present no potential candidates are in sight -- all risky assets will be split off and a core bank doing business with savings banks will remain.
WestLB businesses such as investment banking and international banking will be wound down unless a buyer turns up, they said, adding the WestLB’s bad bank is likely to be used for this purpose.
But talks between the owners over who will cover the costs are still ongoing.
The breakup of WestLB -- once Germany’s most powerful public sector bank -- does not come as a surprise.
The European Commission has demanded a change of ownership at WestLB by the end of 2011, in return for a state bailout the lender got in the financial crisis.
Sources had said last week that a breakup of the lender could only be averted with extra time.
But the European Commission made it clear on Wednesday that it will not extend a 15 February deadline to restructure the bank.
The deadline for the remaining four bidders to submit offers in an ongoing auction is 11 February.
China Development Bank and buyout firms Blackstone, Apollo and J.C. Flowers are said to have handed in preliminary offers.