BAVARIA'S CRISIS-HIT state bank Bayern LB is to lay off 5,600 workers, some 29 per cent of its workforce, and close international investment banking operations to concentrate on its domestic business.
Yesterday's announcement follows a recapitalisation by the Munich state government worth €10 billion - a quarter of the state's annual budget - and €15 billion in federal loan guarantees.
The bank, owned by the Bavarian state government and the local branch of the Sparkasse savings bank group, is the seventh largest in the country and the second-largest of Germany's state banks or Landesbanken.
It was one of Germany's first banks to tap into the country's bank rescue fund and analysts viewed yesterday's complete exit from investment banking as a consequence of that handout.
The bank is to close its five Asian offices, "streamline" offices in London and New York and concentrate primarily on Germany.
Its core focus will be in its traditional sectors: SMEs, business with the Sparkasse group, direct banking and real estate.
Yesterday's news came as a shock to the bank's employees although the storm clouds had been gathering for months, along with the suspicion that the bank was concealing its full exposure to the financial crisis. The bank's chief executive, Werner Schmidt, resigned in March 2008 amid revelations that the bank had operated a similar model to the now-defunct Sachsen LB, brought down last year by its Dublin-based subsidiary. Without the help of an Irish subsidiary, Bayern LB lost about €24 billion in critical securities - on top of losses of €2 billion last year and the same in the first quarter of 2008.
After years of mismanagement and months of hair-raising financial revelations, voters in Bavaria got their revenge on the ruling Christian Social Union in September's state election, giving the party its worst result in 40 years.
"Our worst fears have been confirmed," said Josef Falbisoner, head of the service union Verdi in Bavaria. "The workers are now paying the price for this debacle by politicians and managers."
