April 14, 2011 / 10:29 AM / 9 years ago

UPDATE 1-State hikes NordLB's capital before stress tests

* State injects 600 million euros in equity

* Taken measures will help NordLB pass stress test -chairman

(Adds quotes from chairman)

HANOVER, Germany, April 14 (Reuters) - A regional German state is injecting fresh capital into public-sector lender NordLB [NDLG.UL] to shore up its capital ahead of a European bank health check.

Lower Saxony will contribute 600 million euros ($868.7 million) in ordinary capital in addition to an already announced transformation of 1.1 billion euros in lower-quality capital into equity, the finance minister of Lower Saxony — NordLB’s biggest owner — and NordLB chairman said.

The measures will allow NordLB to pass the stress test the European Banking Authority (EBA) is currently conducting, Hartmut Moellring added.

The EBA has said it will allow lower-quality capital — like NordLB’s silent participations — to count in the test if the bank has already fully committed itself and publicly announced measures by late-April to swap them for equity.

Silent participations are a form of non-voting capital with both debt and equity characteristics that have been criticised by international regulators who fear they may not be available to absorb losses when needed.

NordLB and fellow landesbank Helaba [HLHTG.UL] both rely heavily on such capital. They did not receive a state bailout in the financial crisis, which has left them with a thinner capital base than their peers WestLB [WDLG.UL], HSH Nordbank [HSH.UL] and LBBW [LBBW.UL], which did get capital injections.

Silent participations are especially important to the state-owned landesbank sector. They account for between a quarter and half of the capital reserves of the landesbanks, savings banks, cooperative banks and private banks.

Earlier this week, NordLB Chief Executive Gunter Dunkel said he could not say if the bank would pass the stress test as some details of the exercise remained unclear and it was uncertain if the EBA would consider NordLB’s steps as timely enough. [ID:nLDE73B0KF] (Reporting by Peter Mlodoch, Angelika Gruber, Arno Schuetze; Editing by Mike Nesbit) ($1=.6907 euros)

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