FURTHER IRISH-HELD assets of German financial institution WestLB are likely to be offloaded into a “bad bank” under a drastic restructuring plan proposed yesterday.
Under pressure from the European Commission, the bank submitted a plan with three options, including a proposal to sell to a foreign owner or shrink operations by a third.
However, Berlin sources said yesterday the likeliest option would see 4,000 of the bank’s 5,000 employees made redundant and about half of the bank’s €220 billion value hived off the balance sheet.
A second part, with a balance sheet worth €45 billion, would continue to operate in a way the Landesbanken were intended to operate, offering loans to small- and medium-sized businesses and ensuring the cash supply to local savings banks.
A third part of WestLB, with assets worth about a quarter of the bank’s balance sheet, would be broken off and sold to the highest bidder.
European Union competition commissioner Joaquin Almunia said yesterday he was studying the proposals, which Berlin officials said yesterday would be implemented within two years.
The preferred plan is likely to have a drastic effect on the bank’s Dublin subsidiary, WestLB Covered Bond Bank plc.
Three years ago, it announced that it had “ring-fenced” €23 billion in securities.
Analysts in Berlin said it was likely that further asset offloading was likely.
Regardless of which plan is chosen, it marks an ignominious end for WestLB, once one of Germany’s largest financial institutions.
The commission forced the bank to seek a new owner or break itself up as a condition of a €3 billion state bailout agreed at the height of the financial crisis.
Like many other Landesbanken, WestLB struggled to justify its existence in the past decade after Brussels removed its right to borrow money on preferential, state-backed triple-A terms.
Before losing this state guarantee – the central pillar of all Landesbanken operations – WestLB and others made large speculative investments, including subprime loans, through their Dublin-based operations.
Lumbered with mountains of toxic assets and no deposit base to speak of, they were only saved from ruin by multi-billion state bailouts, increasingly difficult for their federal state owners to justify.
The finance ministry in Berlin welcomed the proposals yesterday.
It also expressed hope this would mark the beginning of a “long overdue” wave of consolidation in the state banking sector – something it has demanded for years.
