Tuesday, August 21, 2007

WestLB chief highlights credit worries

WestLB chief highlights credit worries
© Reuters Limited
September 21, 10.28 BST

The turmoil in the US subprime mortgage market is making it difficult for German banks to get credit lines from their foreign partners, the chief executive of state-backed lender WestLB said late on Monday.

Underlining the severity of the impact of US subprime woes on German banks following the near-collapse of lender IKB this month, Alexander Stuhlmann said the sector was in a ”not uncritical situation” overall.

He said German banks’ rescue of small-company lender IKB had raised the impression abroad that the entire German banking sector was facing problems.

IKB last month unveiled a shock profit warning after running into problems with its investments linked to the market for risky mortgages in the United States.

A consortium of German banks forged a €3.5bn ($4.7bn) rescue of IKB but the problems sent shockwaves through the credit markets as investors speculated that other German and European banks would be affected.

Since then, fellow state bank SachsenLB has also run into subprime-related problems and had to be propped up by fellow banks with a €17.3bn credit line.

WestLB itself has said it has over €1.2bn in overall US subprime exposure, but Stuhlmann said the Duesseldorf-based bank could cover all its risks from its own liquidity. ”We are not in a situation like IKB,” he said.

WestLB, whose previous CEO, Thomas Fischer, left after a trading scandal, is moving towards a merger with a new partner.

The state of North Rhine-Westphalia (NRW) wants to sell its stake of around 38 per cent in the lender and plans to bring in an investment bank as adviser in September.

The two NRW savings bank associations that hold the remainder of WestLB favour a merger with state bank LBBW.

Stuhlmann said the situation was critical when the owners were so far apart in their thinking on the future of the bank, with one group clear on what it wanted and the other still checking options.

WestLB’s owners are to meet on Friday to discuss the issue.

Stuhlmann himself has said that WestLB and LBBW would fit well together.

A merger between WestLB and HSH Nordbank was not on the agenda, from the owners’ point of view, he added.

He said earlier talk that WestLB and SachsenLB might play a leading role in a consolidation of regional state-backed lenders was ”currently not very persuasive.”


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