BayernLB Wants 6 Billion Euro Fund for Assets at Risk


BayernLB needs a 6 billion euro ($9.4 billion) guarantee fund to help it absorb mounting losses on risky investments, Germany's second-biggest landesbank said on Thursday.

BayernLB's 2007 net profit plunged more than 80 percent to 175 million euros, hit by the global credit crisis that it said has cost it 4.3 billion euros so far.

"The markets again fell massively at the start of 2008," new Chief Executive Michael Kemmer told a news conference to present the bank's annual results.

BayernLB said details were yet to be set about the risk fund, which it said would help it shoulder losses on its 24 billion euro portfolio of complex asset-backed securities (ABS).

BayernLB said it would take the first 1.2 billion euros in future losses on its ABS investments.

It was speaking to its owners -- the state of Bavaria and local savings banks -- and the European Commission, which sets rules about state aid, about arrangements to cover the remaining 4.8 billion euros.

Like fellow state-backed landesbanks, BayernLB pushed heavily into investments in asset-backed securities in search of higher returns as a way to offset constrained profit margins in its home market but got burned when credit markets turned sour.

Sachsen Bank, formerly known as SachsenLB, had to be taken over after it ran aground in the credit storm, while WestLB is looking for a partner and cutting jobs after its owners had to step in with a 5 billion euro rescue.

The country's commercial banks such as Deutsche Bank and IKB are also suffering in the crisis.

Accounting agency Ernst & Young said in a report published this week that German banks are sitting on 200 billion euros of non-performing loans that they are having trouble selling.

Traders said the report was pressuring German banking shares on Thursday, with Commerzbank down 4.7 percent and Deutsche Postbank down 2.6 percent by 11:02 a.m. London time, with European banks broadly down less than 2 percent.

BayernLB on Thursday put the negative impact of the credit crisis at 4.3 billion euros by the end of March, of which 2.3 billion euros would directly hit its profit and loss account.

Kemmer told reporters that BayernLB had to get its financial house in order before thinking about a merger, adding he saw no imminent threat to the bank at this stage.

"The decisive problem is that no one can say now how the market will develop and which defaults will still arise," he said.

Sources familiar with the situation said last week that the bank's owners were considering providing the guarantees.

The move came after ratings agency Moody's Investors Service said it had put BayernLB's C- bank financial strength rating on review for possible downgrade.