Forced marriage

27 September 2010 By Nicholas Paisner

WestLB and BayernLB, the troubled stateowned banks, are mulling a tieup that would create Germany’s third largest lender. Consolidation makes sense, but local politics will make it hard to strike a deal. Berlin will have to use all its influence to help overcome the obstacles.

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BayernLB and WestLB and said on Sept. 20 they were exploring the possibility of a merger. The banks said that they aimed "to have a joint understanding by the end of the year on whether a merger makes economic sense."

The German finance ministry will host a meeting on Sept. 28 to discuss the future of the country's stateowned Landesbanks.

Munichbased BayernLB had assets of 340 billion euros as June 30. The Free State of Bavaria owns 94 percent of the bank's share capital, with the remainder owned by the Association of Bavarian Savings Banks. It generated an annualized return on equity of 3.2 percent in the first half of 2010 and had core Tier 1 capital ratio of 10.4 percent.

Düsseldorfbased WestLB had assets of 251 billion euros at the end of June. The State of NorthRhine Westphalia owns 49 percent of the bank, with the rest owned by associations of regional savings banks. It generated an annualized return on equity of 7.5 percent in the first half and a ended the period with a Tier 1 capital ratio of 10.1 percent.

Deutsche Bank had total assets of 1.9 trillion euros and Commerzbank had total assets of 897 billion euros as of June 30.

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