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WestLB wins a rescue deal

STRICKEN German state-backed lender WestLB yesterday secured last-minute rescue financing, allowing it to offload around &euro;85bn (&pound;76.7bn) of risky assets by recapitalising and creating the country&rsquo;s first &ldquo;bad bank&rdquo;.<br /><br />A German Finance Ministry spokesman said a deal had been reached to recapitalise a core, healthy bank that will be separate from the bad bank, just days before financial guarantees propping up the bank were set to expire.<br /><br />The lifeline agreement resolved a dispute between its main shareholders, the government and regional lenders, over who should pay for a fresh bailout. It also means the German government will take a so-called &ldquo;silent participation&rdquo; in the bank &ndash; a capital contribution without voting rights &ndash; which it is understood it could convert into up to 49 per cent equity as of July next year.<br /><br />Pending approval by the European Commission, the first step would be for a ring-fenced portfolio with a volume of up to &euro;6.4bn to go to the bad bank by 18 December. <br /><br />WestLB&rsquo;s bad bank would receive a &euro;3bn capital transfer from WestLB to cover expected losses and &euro;1bn in guarantees from the owners, which are two savings bank associations and the North Rhine-Westphalia state government in Dusseldorf. Only the bank&rsquo;s owners would be liable for those risks related to WestLB&rsquo;s bad bank that exceed the equity capital and guarantees.<br /><br />The next step would be for the German government&rsquo;s Soffin financial markets stabilisation fund to deposit around &euro;3bn into WestLB&rsquo;s core good bank, in exchange for a so-called silent participation.<br /><br />The bank&rsquo;s owners have already promised the European commission a change of ownership by 2012 and a reduced balance sheet in return for approval of last year&rsquo;s state aid. <br />