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BayernLB repays some state aid after selling toxic assets
October 30, 2014 / 12:25 PM / 3 years ago

BayernLB repays some state aid after selling toxic assets

MUNICH, Oct 30 (Reuters) - German public-sector lender BayernLB is repaying another tranche of state aid after striking a deal to sell the last of the toxic assets that brought it to the brink of failure in 2008.

Germany’s second-biggest landesbank said on Thursday it will return 1.1 billion euros ($1.4 bln) to its state owner Bavaria, leaving it with 3 billion euros to hand back by 2019.

In the financial crisis, Bavaria injected 10 billion euros in capital into the lender and gave it 4.8 billion in guarantees for a 21-billion euro portfolio of complex securities that turned sour after the collapse of Lehman Brothers.

The guarantee has become obsolete with the sale of a remainder of 6.5 billion euros in asset-backed securities (ABS) -- securities whose value is linked to developments in the U.S. housing market and European commercial real estate -- to international investors.

Sources familiar with the transaction said Goldman Sachs , Citi, Credit Suisse, Bank of America and JP Morgan were among the buyers.

The banks declined to comment.

According to trading data provider Empirasign, price indications ahead of the deal were 74.28 cents on the dollar for the US securities and 91.72 cents on the euro for the European assets.

BayernLB benefited from a surge in ABS prices after the European Central Bank (ECB) said it plans to start buying these assets, and from a broad rebound in real estate markets.

While the Munich-based lender booked a loss of 1.2 billion euros on the ABS portfolio, the state of Bavaria benefited by collecting fees from the bank for providing the guarantees.

“In the end, a profit of about 1.3 billion euros remains from this engagement of Bavaria at BayernLB,” Bavaria’s Finance Minister Markus Soeder said.

BayernLB Chief Executive Johannes-Joerg Riegler said: “Another legacy asset is gone. We would not have dreamt that at the beginning of the debate.” (1 US dollar = 0.7955 euro) (Reporting by Jens Hack in Munich and Arno Schuetze in Frankfurt; editing by David Clarke)

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