Raising Helaba

15 April 2011 By George Hay Follow @gfhay

The two German landesbanks are being forced to raise capital to avoid failing this summer’s Europeanwide stress tests. That is tricky politically. But by acting as a catalyst for muchneeded reform of Germany’s publicsector banks, it’s good for the credibility of the exercise.

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The German state of Lower Saxony is to put 600 million euros of fresh equity into NordLB, its regional landesbank. The new capital follows Lower Saxony's recent decision to turn 1.1 billion euros of socalled "silent participation" hybrid capital into ordinary equity.

The measures will enable NordLB to pass this summer's European Banking Authority (EBA) stress test, Lower Saxony finance minister and NordLB chairman Hartmut Moellring told Reuters on April 14.

NordLB and Landesbank HessenThuringen (Helaba) did not receive public bailout money during the financial crisis, but silent participations account for 36 percent and 53 percent of their Tier 1 capital respectively. The EBA has decided these will not be eligible in its stress test. The EBA will allow silent participations from the central government's recapitalisation fund SoFFin.

Lower Saxony and SaxonyAnhalt currently own 50 percent of NordLB, with local savings banks owning the other half. Following the measures, the regional states will hold 65 percent.

Helaba is currently owned 85 percent by its savings banks and 15 percent by the states of Hessen and Thuringen. It has until the end of April to decide how to raise capital.

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