Germany working on new rescue for banks-paper

BERLIN Thu Jan 22, 2009 2:48am EST

BERLIN Jan 22 (Reuters) - The German government is working on a new rescue plan for the country's ailing banks that could let the industry get hundreds of billions of euros of bad assets off its books, the Handelsblatt newspaper reported.

Under a "Bad Bank Light" plan being discussed by representatives of Chancellor Angela Merkel's government, the Bundesbank and Soffin bank rescue fund, the state would take on bad assets of banks and absorb losses on them as they mature but also get a claim on future gains, the paper reported.

The value of the assets would be fixed at a set date when banks close their books. Handelsblatt said this model had been used successfully with East German banks after German reunification in 1990.

No one was immediately available at the German Finance Ministry to comment on the report.

Finance Minister Peer Steinbrueck said on Tuesday that the creation of a so-called "Bad Bank" to house toxic assets could not be justified. Merkel's spokesman said on Wednesday that Germany was not working on such a plan.

Germany unveiled a 500 billion euro ($650 billion) rescue package for its banks in October, but it has failed to prevent a further sharp deterioration in the health of the industry.

Earlier this month, Germany was forced to inject 10 billion euros and take a 25 percent stake in Commerzbank (CBKG.DE). The country's largest bank, Deutsche Bank (DBKGn.DE) shocked markets a week ago when it said it had racked up a loss of about 4.8 billion euros in the last quarter of 2008.

"Despite the rescue package, the deterioration in the value of bank assets has not stopped. We need a new expanded solution to restore the trust between banks," Handelsblatt quoted an official involved in the talks as saying.

The paper said the government was considering taking up to 300 billion to 400 billion euros in bad assets off banks' balance sheets. It would be up to the banks themselves to decide which assets they wanted to move off their books.

The paper said, however, that some people in the government opposed the idea. ($1=.7697 Euro) (Writing by Noah Barkin; Editing by Hans Peters)