February 1, 2019 / 10:50 AM / 6 months ago

UPDATE 2-State, savings banks plan is frontrunner for NordLB revamp

* State ready to offer 2.5 bln euros, 1 bln of guarantees

* Savings banks to inject 1.2 bln euros

* Some bad shipping loans could go into wind-down unit (Adds Cerberus acquisition of ship portfolio imminent)

By Klaus Lauer

BERLIN, Feb 1 (Reuters) - A plan by German savings banks to recapitalise ailing public sector bank NordLB has the backing of its majority owner, the regional state of Lower Saxony, Prime Minister Stephan Weil said on Friday.

The restructuring draft drawn up by Lower Saxony and the savings banks offered more advantages than a rival proposal coming from the private sector, Weil said.

A final decision on which plan to adopt is still pending, but a rival offer from private equity groups Cerberus and Centerbridge is not expected to have much chance of success, people close to the matter said.

“This is the most economical solution for Lower Saxony,” Weil said, adding he was confident of getting approval from the European Central Bank and the European Commission for the proposal from the state and the savings banks.

The regional state is ready to pump 1.5 billion euros ($1.72 billion) into the lender and provide 1 billion euros in guarantees, in addition to the 1.2 billion the savings banks are ready to inject, he said.

Separately, the bank is expected to sign a deal at the weekend to sell a non-performing 2.5 billion euro ship portfolio - dubbed Big Ben - to Cerberus, people close to the matter said.

The expected writedowns on NordLB’s sour ship loans were the main reason that the lender had to seek fresh capital.

German savings banks on Thursday decided on a plan for the recapitalisation of NordLB, capping months of discussions during which a stake sale to private equity had seemed more likely.

According to the restructuring plan proposed by the state and the savings banks, NordLB’s balance sheet would shrink from a total of 150 billion euros to below 100 billion in the medium term. The lender would target a core equity ratio of about 14 percent, compared to 11.8 percent seen in September.

Parts of NordLB, such as its retail unit Braunschweiger Sparkasse, could be spun off.

NordLB is also planning to rid itself of two portfolios of sour shipping loans. While “Big Ben” is slated to be sold to Cerberus, a 3.9 billion euro portfolio dubbed “Tower Bridge” will initially stay with NordLB and wound down, sources said.

One shipping portfolio may be transferred to a run-down vehicle to minimise writedowns, said Finance Minister Reinhold Hilbers, who is also NordLB’s chairman.

NordLB entered exclusive talks with Cerberus over the two shipping portfolios in December, but made it clear that a signature on that deal was dependent on the outcome of talks on the recapitalisation of the bank.

Cerberus was not immediately available for comment. ($1 = 0.8734 euros) (Additional reporting by Arno Schuetze; editing by David Evans)

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