March 28, 2012 / 1:40 PM / 7 years ago

UPDATE 1-Owners of BayernLB agree on revamp

* Owners reach compromise on bailout contribution by savings banks

* EU Commission says hopes to close case soon

* BayernLB to repay 5 billion in state aid from 2013 (Adds comments by Almunia, Bavaria’s finance minister)

MUNICH/BRUSSELS, March 28 (Reuters) - The owners of ailing BayernLB agreed on a restructuring of the German publicly-owned wholesale lender in a bid to win approval for an aid package from Europe’s competition watchdog.

“In the EU state aid proceedings a sustainable compromise between Bavaria’s savings banks and the regional state of Bavaria has been reached,” the Association of Bavarian Savings Banks, a co-owner of BayernLB, said on Wednesday.

It gave no detail on what the restructuring would involve.

BayernLB ran into trouble in 2008 after risky investments turned sour in the financial crisis. The state of Bavaria injected 10 billion euros ($13 billion) in fresh capital, boosting its holding to 94 percent and diluting the savings banks’ stake to 6 percent.

EU Competition Commissioner Joaquin Almunia told a news briefing he hoped to close the case soon, adding: “We are not yet there, unfortunately.”

In February, he had said: “We can no longer afford zombie banks as we struggle to generate growth and at a time when many EU governments are asking the people to tighten their belts.”

Bavaria’s finance minister Markus Soeder said: “We are close, but the last five meters to the top are always the hardest.”

The EU has criticised the contribution of the savings banks to the revamp as too low and has demanded that a sale of BayernLB’s mortgage unit LBS Bayern to the savings banks must reflect market prices.

The savings banks are set to buy LBS for between 1 billion euros and 1.2 billion, sources close to the negotiations said.

They added that BayernLB is also ready to divest its loss-making Hungarian unit MKB and real estate unit GBW.

Once all restructuring measures are in place, BayernLB will only be roughly half the size it had been before the financial crisis.

Soeder said BayernLB planned to expand its energy-related business and turn into an “energy bank”.

He added that the lender would repay 5 billion euros of the 10 billion in bailout money starting in 2013, adding payouts would be tailored in a way to make sure BayernLB complies with regulatory capital requirements. ($1 = 0.7506 euros) (Reporting by Christian Kraemer in Munich, Arno Schuetze in Frankfurt and Foo Yun Chee in Brussels)

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