A breakthrough has been achieved in the negotiations to save Westdeutsche Landesbank (WestLB). The German Finance Ministry confirmed on Tuesday that an agreement had been reached between the owners of WestLB and the German government and the Special Fund for Financial Market Stabilization (SoFFin). As planned, a so-called "institution within the institution" will be formed. The core bank should be recapitalized.
Earlier, Heinrich Haasis, President of the Savings Banks, had announced that the CEOs of the German Landesbanks had agreed at a meeting on Monday on financial support for the restructuring of WestLB.Meanwhile, citing insiders, the Dow Jones Newswires business news agency reported that SoFFin would contribute around three billion euros to the Landesbank of North Rhine-Westphalia. The savings banks, which had resisted further aid payments for the Landesbank in recent weeks, would not give any fresh money. The savings banks' share in WestLB would fall accordingly. So far, the public institutions hold slightly more than half of the shares.The agreement reached by WestLB's owners with the federal government in Berlin calls for the core bank to transfer three billion euros in "real capital" to the wind-down bank. The WestLB owners amed that the "bad bank" would be wound up with an expected final loss of around four billion euros, it was added. The savings banks set aside their share of WestLB profits for 25 years as a provision for unexpected losses in the run-off bank.The deconsolidated environment will also receive a further EUR 200 million from the Landesbanken security fund to cover possible losses. 180 million euros of which WestLB had previously paid in itself. The security fund adds the remaining 20 million euros, although WestLB is not on the verge of collapse, but the owners have merely asked for help.Most recently, the savings banks of North Rhine-Westphalia had tried to reduce their liability obligations in connection with the formation of a "bad bank" to rescue WestLB. The two savings bank associations RSGV and WLSGV had held talks on a possible use of the security reserve of the Landesbanken to secure obligations from the loss amption guarantee for the wind-down bank, WestLB said.According to a report in the "Frankfurter Allgemeine Zeitung" (Tuesday edition), the bank could have been closed if the state guarantees had not expired by 30 September. The government has also said that no solution will be found by November for the capital requirements, which are estimated at between three billion and five billion euros.WestLB, on the other hand, had said it was in "constructive and goal-oriented" negotiations with SoFFin on the transfer of a portfolio with a volume of â‚¬85 billion to the deconsolidated environment.