Limping landesbanks

2 June 2003

The landesbanks don’t pose the same threat to the system that private sector banks do. But they are responsible for the mess.

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Germany's biggest landesbanks have run up big losses trying to break into the big league of international banking. WestLB recently announced a loss of E1.7bn, due partly to risk provisions at its Special Finance division, which includes international project and trade finance and principal finance.

Germany's banking regulator, BAFin, is now investigating how a £750m financing arranged by WestLB's principal finance unit for a UK television rental company called Boxclever ran into trouble, forcing WestLB to book a charge of E330m.

Bayerische Landesbank, the second biggest landesbank after WestLB, has also racked up big losses on lending to the Kirch empire, whose implosion last year was the most spectacular of a string of corporate collapses in Germany.

Bayerische's exposure to Kirch, estimated at E2bn, as well as to Philipp Holzmann, the construction group, and Fairchild Dornier, the insolvent aircraft manufacturer, forced the bank to make hefty provisions and to sell noncore assets.

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