Germany’s banking industry is showing signs of possible
consolidation: WestLB has started merger talks with Landesbank
Hessen-Thueringen, and Landesbank Baden-Württemberg, Germany’s
biggest publicly owned bank, has confirmed it will proceed with its
takeover of SachsenLB. Douglas Blakey reports.
WestLB, the troubled German state-owned bank hammered by a
trading scandal and heavy US subprime losses, has published a
ten-point strategic plan for its future, jointly issued by its
shareholders, which puts a merger deal with publicly owned peer
Landesbank Hessen-Thueringen (known as Helaba) high on the list.
The plan also suggested the bank should change its business model
to target the SME segment of the market and develop products for
retail customers of the German savings banks (the
Sparkassen).
Go deeper with GlobalData
A deal with Helaba will offer WestLB something it has never had – a
retail banking network – as well as access to the country’s
Mittelstand, or mid-sized companies. A wholly owned
subsidiary of Helaba, Frankfurter Sparkasse serves private
customers and SMEs in the Rhine-Main region via a network of 89
branches and 21 advice centres. It also has the successful
1822direkt direct banking operation.
Anna Lozmann, an analyst with ratings agency Fitch, told
RBI: “Consolidation of the German banking sector has so
far been ongoing mainly in the private sector. A potential merger
of WestLB and Helaba would be the next milestone in this process.
In particular in the Landesbank sector, Fitch expects
continuing consolidation.”
Saved from possible collapse
Embattled SachsenLB, the state of Saxony-owned public bank and one
of the highest-profile casualties of the US subprime crisis, has
been saved from possible collapse following successful crisis talks
involving German financial watchdog BaFin, the Bundesbank (central
bank) and the German savings banks association (DSGV). Landesbank
Baden-Württemberg (LBBW), Germany’s biggest publicly owned bank,
confirmed it would proceed with its takeover of SachsenLB – but
only after the state of Saxony and the public bank sector offered
fresh guarantees to cover SachsenLB’s losses, which were triggered
by defaults on subprime US mortgages.
The state of Saxony has agreed to provide a €2.75 billion ($4
billion) risk guarantee for SachsenLB, and has agreed a sale price
of €328 million. The state of Saxony also agreed to set aside an
additional €500 million for possible writedowns. In a statement,
SachsenLB said “there are no more obstacles” in the way of the
bank’s takeover by LBBW on 1 January 2008.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataGerman media reports suggested LBBW had initially sought a
guarantee of €4.3 billion from the state of Saxony, approximately
one-quarter of the state’s annual budget. SachsenLB has already
been bailed out by other state-owned banks once this year, when the
credit crunch in August prevented from it raising finance.
The takeover of SachsenLB reduces the number of major
Landesbanken in Germany to seven and follows DSGV’s
acquisition of Landesbank Berlin in the first quarter of the year
(see RBI 575).
Very public disagreements
Significantly – and in contrast to very public disagreements among
WestLB’s shareholders earlier this year – WestLB’s shareholders
appear to be united in pursuing a common agenda and have released a
ten-point statement setting out options for the bank’s
future.
In particular, WestLB’s owners said, they agree the bank requires
“significant” restructuring measures. “In addition to measures
aimed to strengthen WestLB, a change in the business model is
needed,” they said.
As regards a possible merger, Frankfurt-based Helaba, owned by the
savings banks and state governments of Hesse and Thuringia, said in
a statement it is “ready to accept WestLB’s offer to talk [but any
deal] must generate sustained economic advantages for all
participants”. It added that it would require the risks to be
“fully transparent, calculable and manageable”.
WestLB’s current difficulties stem from its decision to step up its
investment in the equity and bond markets after it lost state
guarantees in 2005, as well as a result of increased competition in
its domestic corporate lending market.
The Düsseldorf-based group has endured a difficult year during
which it attracted adverse publicity after reporting a €604 million
trading loss in the first half that led to the removal of its CEO
and an investigation by legal authorities. In particular, the
bank’s capital markets unit has contributed to its woes, reporting
a pre-tax loss of €333 million for the first three quarters of the
year, compared with a profit of €386 million for the same period
last year.
To date, WestLB has focused on wholesale banking and has steered
clear of the retail banking sector. It lacks an integrated
distribution platform as well as earnings from depositors, a
problem its peers LBBW and Helaba partially solved by acquiring
retail savings banks in Stuttgart and Frankfurt,
respectively.
Since the arrival of new management in 2004, WestLB has tried to
alter its business profile by cutting back many of its
international activities and targeting joint business with the
savings banks of North Rhine-Westphalia. However, its current small
share of lending to domestic clients demonstrates that the bank has
yet to earn meaningful sums from this new business.
The bank’s most recent trading update forecast a full-year pre-tax
loss “in the low three-figure million range”. Last year, it made a
pre-tax profit of €1 billion.
According to analysts, a successful merger with Helaba would be
highly dependent on the merged entity making significant job cuts,
but Lozmann at Fitch said: “The shareholders of WestLB are aware
that restructuring measures are necessary to realise
synergies.”
