DUESSELDORF, July 1 German state-backed lender WestLB was broken up in time to meet an EU-imposed July 1 deadline, with its former owners hoping to draw a line under years of losses and controversy at what was once the country's biggest landesbank.
"We are removing a large bank from the market," said Norbert Walter-Borjans, finance minister of the German state of North Rhine-Westphalia, which had been a major WestLB stakeholder.
WestLB, whose international ambitions were cut short by a series of trading scandals and losses that led to repeated bailouts by its owners, will have cost taxpayers and savings banks an estimated 18 billion euros ($23 billion) between 2005 and 2028, when the last of its bad assets is wound down.
"It is a terrible end, but one that is preferable to a terror without end," Walter-Borjans said in a statement on Sunday.
The European Commission had ordered a change of ownership at WestLB in response to the billions of euros in state aid and guarantees the lender had received to cope with its problems.
The Commission also demanded restructuring at its fellow landesbanks LBBW and BayernLB for state aid they received in the financial crisis.
WestLB's demise is seen as an important step in the long-awaited consolidation of the country's landesbanks, which provide wholesale banking services to their regional savings banks and compete against publicly-traded lenders like Deutsche Bank and Commerzbank.
North Rhine-Westphalia's government and savings banks, along with representatives of the federal government and landesbank Helaba, which is taking over part of WestLB's business, ended months of haggling on Saturday to sign the agreement on WestLB's breakup.
As part of the restructuring, WestLB has been split into three parts:
- A regional bank with about 40 billion euros in assets, dubbed Verbundbank, will provide service to regional savings banks and will be taken over by Frankfurt-based Helaba, along with 451 former WestLB employees.
- A "bad" bank, known as Erste Abwicklungsanstalt (EAA), which has already been working to wind down bad assets worth around 51 billion euros as of the end of 2011. The EAA will also be tasked with winding down about 100 billion euros of additional assets from WestLB's final breakup, including those of property finance unit Westdeutsche Immobilienbank AG.
- A financial services and portfolio management company called Portigon, which starts business on Monday with around 3,500 former WestLB employees, but is expected to end the year with less than 2,700. Staff numbers are expected to decline further thereafter and Portigon's sole owner, the state of North Rhine-Westphalia, is due to sell the business by the end of 2016.
Portigon is expected to help with the winding down of bad assets held by the EAA, which will have only about 100 employees.