The Landesbanken’s transformation since the financial crisis of 2007-8 has not been as dramatic as experts expected, but there has been some movement.Banks have pared back the international operations and exotic investments that triggered so many losses, and have refocused on their grass roots German business. The Landesbanken sector’s total balance sheet has contracted by over 300 billion euros since 2008.
West LB was closed, with some of its assets going to Helaba. Sachsen LB was folded into Landesbank Baden-Wurttemberg (LBBW) and Landesbank Berlin is being dismantled into a savings bank and real estate business, with its capital markets arm moving to Deka.
State control at both Bayern and LBBW has been eased, after the European Commission insisted on less state representation on their supervisory boards.
The key milestones are below:
February 2008: WestLB gets 5 billion euros risk shield to protection against potential losses
December 2008: BayernLB gets a 10 billion euros capital injection from the state of Bavaria and a 4.8 billion euros ‘risk shield’ against future losses.
November 2009: LBBW gets 5 billion euros capital injection from its owners, and a guarantee of 6.7 billion euros for losses above 1.9 billion euros in its asset backed security (ABS) portfolio.
February 2009: HSH Nordbank gets 3 billion euros of fresh equity from its state shareholders and a 10 billion euros ‘risk shield’ for loan losses above a certain threshold.
October 2009: WestLB agrees to move at least 87 billion euros of assets into a ‘bad bank’, and gets 6.4 billion euros of additional aid, through an increase in its ‘risk shield’ from Germany’s bailout unit Soffin. The risk shield increase was later replaced with a 3 billion euros recapitalisation of WestLB and a guarantee of 1 billion euros.
March 2011: HSH reduces its state-provided ‘risk shield’ from 10 billion euros down to 7 billion euros.
June 2012: Frankfurt’s Helaba agrees to take over 40 billion euros of WestLB’s core assets. Another 51 billion of WestLB’s remaining assets go to a ‘bad bank’, and a financial services company Portigon is spun out with 3,500 staff.
November 2012: HSH secured an increase of its state-provided ‘risk shield’ back up to 10 billion euros. The increase triggered another European Commission state aid investigation into HSH; the investigation is ongoing.
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