• Germany's news in English

BayernLB first in line for German state aid

AFP · 22 Oct 2008, 10:30

Published: 22 Oct 2008 10:30 GMT+02:00

Facebook Twitter Google+ reddit

Bayerische Landesbank said it would apply for €5.4 billion ($7.08 billion) in aid, taking advantage of a government-backed rescue plan worth €480 billion in direct aid and loan guarantees.

The southern regional bank, which is jointly owned by the state of Bavaria and regional savings banks, had invested heavily in asset-backed securities (ABS) which lost much of their value when the US market for high-risk, or subprime mortgages collapsed more than a year ago.

As it struggled to get back on its feet, BayernLB's situation was slammed again when interbank loans dried up in the aftermath of a bankruptcy by the US investment bank Lehman Brothers in mid September.

On Monday, the cabinet finalised on Monday the conditions under which banks can make use of a €480-billion rescue package rushed through parliament last week.

By applying for the state aid, BayernLB will agree for example that its executives may earn no more than €500,000. Any dividend payments must go to the state and the government can also force the bank to reduce or give up entirely particularly risky lending practices, as well as to continue making loans to small and medium sized firms.

The programme passed by lawmakers on Friday includes €400 billion in loan guarantees in order to get banks lending to each other and up to €80 billion to shore up banks' balance sheets battered by the financial crisis.

The rescue package, the biggest in postwar Germany, was similar to other measures announced by Germany's partners in the 15-country eurozone along the lines of a British programme after crisis talks in Paris on October 12.

BayernLB, the second biggest German regional bank, posted a pre-tax loss of €770 million in the first quarter of 2008 that forced shareholders to come up with €4.8 billion in loan guarantees.

Landesbanken are a result of Germany's federal political structure. They are publicly owned by local savings banks associations and regional authorities. As such they used to benefit from state guarantees that allowed them to extend credit at lower rates.

But "their business model does not work any more," Merck Finck analyst Konrad Becker said. "The era when each state had its own bank is over."

Story continues below…

When the European Commission curbed the privilege in 2005, the banks were forced to look elsewhere for business and fell back on risky investments as a way to keep making money.

One possible solution for BayernLB is to merge with a powerful sister bank, Landesbank Baden-Wuerttemberg or LBBW, which would create a southern German banking powerhouse.

LBBW, the biggest regional bank, said last week that its level of shareholder funds was "very good" and that it did not need a cash injection from Berlin.

Facebook Twitter Google+ reddit

Today's headlines
Outrage over ruling on 'brutal' gang rape of teen girl
The now convicted suspects, sitting in court in Hamburg. Photo: DPA.

A 14-year-old girl was gang-raped and left partially clothed and unconscious in freezing temperatures. Now prosecutors are appealing the sentences for the young men found guilty, most of whom will not set foot in jail.

Dozens of Turkish diplomats apply for asylum in Germany
Demonstrators holding a giant Turkish flag protest against the attempted coup in Istanbul in July. Photo: DPA.

Since the failed putsch attempt in Turkey in July, Germany has received 35 asylum applications from people with Turkish diplomatic passports, the Interior Ministry confirmed on Wednesday.

Hertha Berlin fan club criticised for 'anti-gay banner'
Hertha BSC beat FC Cologne 2-1. Photo: DPA

A 50 metre fan banner apparently mocking the idea of gay adoption has overshadowed Hertha BSC's win in the Bundesliga.

Germany stalls Chinese takeover of tech firm Aixtron
Aixtron headquarters in Herzogenrath. Photo: DPA

The German government on Monday said it had withdrawn approval for a Chinese firm to acquire Aixtron, a supplier to the semiconductor industry, amid growing unease over Chinese investment in German companies.

Politicians call for tough sentences for 'killer clowns'
File photo: DPA.

Now that the so-called 'killer clown' craze has spread from the US to Germany, elected officials are drawing a hard line against such "pranks", with some threatening offenders with jail time of up to a year.

Nearly one in ten Germans are severely disabled
Photo: DPA

New figures reveal that 9.3 percent of the German population last year were considered severely disabled.

The Local List
Germany's top 10 most surreal sites to visit
The Upside-Down House, in Mecklenburg–Western Pomerania. Photo: Olaf Meister / Wikimedia Commons

From upside-down houses on Baltic islands to a fairy-tale castle near the Austrian border, Germany is a treasure trove of the extraordinary.

Bavarian critics back Merkel for Chancellor again
Photo: DPA

The Christian Social Union (CSU) have long delayed backing Angela Merkel as their candidate for Chancellor in next year's general election. But now key leaders are supporting her publicly.

Four taken to hospital after hotel toilet bursts into flames
File photo: DPA.

Four guests at a Nuremberg hotel were taken to hospital due to smoke inhalation early Monday morning after a toilet there burst into flames.

Creepy clown scare spreads to Germany
Two of the clowns were apparently equipped with chainsaws. Photo: Pedro Pardo / AFP file picture

Police said Friday five incidents involving so-called scary clowns had occurred in two north German towns, including one assailant who hit a man with a baseball bat, amid fears that Halloween could spark a rash of similar attacks.

10 things you never knew about socialist East Germany
Sponsored Article
Last chance to vote absentee in the US elections
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
Eleven famous Germans with surnames that'll make your sides split
The best ways to get a visa as an American in Germany
jobs available
Toytown Germany
Germany's English-speaking crowd