Consolidation Pressure in Germany Politicians Call for State-Owned Banks to Merge
Germany's regional banks have been hit hard by the global financial crisis, which has already cost them over 11 billion. The latest dire finanical results have led to renewed calls for mergers.
Bavarian state bank BayernLB reported the biggest writedown of any German regional bank last week. Now, politicians are calling for it to merge with one of its peers.
Bayerische Landesbank reported Thursday that it made 4.3 billion ($6.7 billion) in writedowns -- double its previous estimate -- in 2007 and 2008 because of the global credit crunch. The day before, Düsseldorf-based WestLB revealed it had lost 1.6 billion in 2007 after the international financial crisis slashed more than 2 billion from its investments.
Since the disastrous results were announced, politicians have increased their calls for consolidation in the state-owned bank sector.
Otto Bernhardt, expert on financial issues for the center-right Christian Democratic Union party, told the newspaper Tagesspiegel am Sonntag that BayernLB should take advantage of Landesbank Baden-Württemberg's offer of a merger, which has been talked about for months. "The latest figures show that the pressure on regional bank mergers has grown," he said.
Helmut Linssen, the finance minister of the state of North Rhine-Westphalia, where WestLb is based, called on German Finance Minister Peer Steinbrück to help bring about the consolidation of the regional bank sector. Linssen told Monday's edition of the business daily Handelsblatt that Germany's financial and economic standing in the world was at stake.
The most radical proposal to solve the state-owned banks' financial woes has come from the Green Party, who have called for all eight regional banks to be merged into one institution, which would concentrate on regional economic development. The party's co-floor leader, Renate Künast, told the newspaper Welt am Sonntag: "The regional banks should be merged into one and their functions need to be clearly laid out."
According to analysts, Landesbank Baden-Württemberg -- the strongest of the regional banks -- is likely to play a key role in any future mergers. In December last year, LBBW agreed to take over Sachsen LB, which was on the brink of collapse due to its exposure to the subprime sector. LBBW also bought the Landesbank Rheinland-Pfalz.
But LBBW's boss, Siegfried Jaschinski, said a takeover of BayernLB was not on the cards for this year. He told weekly business magazine WirtschaftsWoche: "In principle we are always willing to talk. But this year the integration of SachsenLB and LRP take priority."