Gilding the wallflower

8 February 2008 By Mike Verdin

The publicsector owners of the troubled German bank are taking over E23bn of its riskiest assets. That means yet another cash injection, but the bank can t be allowed to fail. And if generous support helps get WestLB off their hands, they may feel it is money well spent.

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WestLB's owners have agreed a E5bn support package for WestLB as part of a revamp at the German bank which will cost up to 1,500 jobs.

The agreement will spin off E23bn of WestLB assets into a special purpose vehicle which will be guaranteed by the bank's owners – two savings banks associations and North Rhine Westphalia.

All shareholders will guarantee the first E2bn of any losses in the SPV. North Rhine Westphalia alone will cover the next E3bn, although it will be able to claim WestLB stock from the savings banks at a price of E220 minus a E20 discount in proportion to any charge.

The bank estimated that its job cuts would save E300m a year, with income raised by E100m a year through a plan to increase business with savings banks and midsized companies.

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