WestLB wins a rescue deal
STRICKEN German state-backed lender WestLB yesterday secured last-minute rescue financing, allowing it to offload around €85bn (£76.7bn) of risky assets by recapitalising and creating the country’s first “bad bank”.
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.
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 “silent participation” in the bank – a capital contribution without voting rights – which it is understood it could convert into up to 49 per cent equity as of July next year.
Pending approval by the European Commission, the first step would be for a ring-fenced portfolio with a volume of up to €6.4bn to go to the bad bank by 18 December.
WestLB’s bad bank would receive a €3bn capital transfer from WestLB to cover expected losses and €1bn in guarantees from the owners, which are two savings bank associations and the North Rhine-Westphalia state government in Dusseldorf. Only the bank’s owners would be liable for those risks related to WestLB’s bad bank that exceed the equity capital and guarantees.
The next step would be for the German government’s Soffin financial markets stabilisation fund to deposit around €3bn into WestLB’s core good bank, in exchange for a so-called silent participation.
The bank’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’s state aid.