Stricken German bank WestLB said on Wednesday it was looking for a partner after problems stemming from credit markets turmoil forced its owners to step in with a 5 billion euro ($7.8 billion) rescue. WestLB had already been struggling with an expensive trading bungle when the credit crisis struck, pushing it to a 1.6 billion euro loss in 2007.
It said the global credit turmoil had cost it over 2 billion euros last year and that there would be more expense in 2008. It gave no earnings forecast for this year as it moves to cut 1,350 jobs by 2010. However, Chief Executive Alexander Stuhlmann said the bank's future was stable after a local government-led rescue that will cover up to 5 billion euros of losses from WestLB's risky investments.
He also flagged the regional lender's interest in finding a partner. "We are tackling the restructuring of the bank with full power," said Stuhlmann. "With this, the bank is readying itself to play its role in the consolidation of Germany's landesbanks."
Helmut Linssen, finance minister of the local state of North Rhine-Westphalia which partly owns WestLB, suggested Germany needed only two landesbanks, the regional lenders that serve community savings banks. There are currently seven.
Germany has been among the worst affected by the credit market crisis, which triggered the near collapse of regional bank SachsenLB - now called Sachsen Bank - and small-company lender IKB. WestLB and a financial investor ally have cast an eye on IKB, which is up for sale, sources have said.
Struggling after the abolition of government guarantees that made it cheaper for regional state-backed banks to borrow, many seized on the market in securitised debt to bolster their profits, only to run into trouble when credit markets seized up. The credit crisis put huge strain on structured investment vehicles (SIVs), which raise funding by issuing short-term debt to finance longer-term investments in bank debt and asset-backed securities.
WestLB ran a series of investment vehicles including SIVs with a value of about 25 billion euros and problems with these investments have gradually eaten up its capital.
Its Tier One capital ratio - a key measure of financial health - has been gradually falling and recently slipped into the danger zone. Had North Rhine-Westphalia not stepped in to guarantee its investments, WestLB would have seen its capital dwindle to a level that could have forced its closure, sources familiar with the matter said earlier this week.