LB damned

16 September 2010 By George Hay Follow @gfhay

Germany’s regional lenders have been given a lenientlooking 13 years to comply with new bank capital rules. But local governments don’t want to pump in more cash and weak earnings won’t make up the shortfall. Balance sheet shrinkage and consolidation look the only way forward.

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German finance minister Wolfgang Schaeuble has launched a new campaign to merge the country's publiclyowned landesbanks following the introduction of new Basel III rules on bank capital.

"The need for action has increased, and it's correct that the finance minister will increase his efforts to work towards a solution on this issue," finance ministry spokesman Michael Offer said on Sept. 15.

Under the new rules published by the Basel Committee on Banking Supervision on Sept. 12, Germany's landesbanks will be permitted to count their holdings of hybrid capital towards their core Tier 1 ratios until 2023.

The regional lenders, which provide about 20 percent of lending to German businesses, will be able to count the "silent participation" debtlike capital they hold from the federal government. This numbers about 13.3 billion euros, according to DZ Bank.

However, the compromise only applies to nonjoint stock companies. Some landesbanks, such as WestLB and HSH Nordbank, are structured as jointstock companies, while LBBW is due to become one in 2013. A question mark hangs over the deadline for these lenders.

The sector as a whole made a cumulative pretax loss between 2001 and 2009, according to Fitch estimates.

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