Investor JC Flowers eyeing WestLB: sources

By Matthias Inverardi and Patricia Nann

FRANKFURT (Reuters) - U.S. financial investor J.C. Flowers is keen to expand its presence in German state-backed banks by buying the 38 percent stake in WestLB held by the German state of North Rhine-Westphalia (NRW), sources familiar with the situation said on Monday.

NRW's government, which wants to sell the stake, has already spoken with J.C. Flowers, the sources said.

NRW has also been in contact with other financial investors, one source familiar with the situation said.

A sale of the WestLB stake would be a rare chance to grab a piece of business in Germany's fragmented banking market.

A spokeswoman for NRW's finance ministry declined to comment, other than to say that state Finance Minister Helmut Linssen was holding a number of discussions about the future WestLB. "We welcome anyone who is interested," she said.

J.C. Flowers also declined to comment.

However, Flowers is no stranger to the German landesbanks, as the regional state-backed lenders are called.

It is the only financial investor so far that has managed to buy a chunk of a state-backed lender, successfully bidding for a 27 percent stake in HSH Nordbank, which it bought from WestLB, in 2006.

WestLB's current chief executive Alexander Stuhlmann had previously been chief executive of HSH Nordbank.

WestLB's former head and chief risk officer stepped down after Germany's financial regulator said its supervisory board had not been properly informed about a series of share trades earlier this year, on which the bank lost over 600 million euros ($818.3 million).

State prosecutors are investigating seven current and former WestLB board members in connection with the affair.

NEW WAY FOR WESTLB

NRW has said it is reviewing options for its stake, but is keen to find a solution that preserves jobs and the state's profile as a financial centre.

However, two savings bank associations that together own about half of the shares in WestLB have voted to back its possible merger with Germany's biggest landesbank, LBBW.

LBBW agreed last week to buy Saxony's landesbank SachsenLB, after it ran into trouble over investments linked to the market for risky U.S. mortgages.