"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "


Chinese premier Wen Jiabao 12th March 2009


""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."


Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Saturday, September 22, 2007

Saving banks in trouble - The German method. Mervyn King's lies about EU legislation exposed.


On Aug. 17 fellow state-owned banks provided emergency funding to Leipzig based Landesbank Sachsen Girozentrale to pay debt owed by a unit that invested in asset- backed securities, including subprime loans which totalled (it is reported) 3 Billion Euros.

SachsenLB is / was the last independent state - owned Landesbank, with assets declared of Euros 68 Bn and about 600 staff.

SachsenLB was formed in 1992, after the fall of the Berlin Wall and reunification of Germany.
The total bail out is reported to have been Euros 17.3 Bn (US$23.7Bn.). The stateof Saxony is bounded by Poland and the Czech Republic.

Problems are said to have arisen at the Dublin-based SachsenLB Europe unit, that manages financial affiliates including Ormond Quay and Georges Quay, which invest in asset-backed bonds - ``one of the most profitable companies and strongest earnings drivers of the group,'' SachsenLB said in its 2006 annual report.

The division had claimed pretax consolidated income of Euros 54 Mn. last year, SachsenLB said in its 2006 annual report. It is expected that SachsenLB's activities in Dublin will be much reduced or will cease.

10 days after this bail out it was agreed that Landesbank Baden-Wuerttemberg (LBBW) , the largest German state-owned bank, ( 1/3 rd owned by the State), agreed to to buy Landesbank Sachsen Girozentrale (LBBW Press release). In January 2005 LBBW bought Landesbank Rheinland-Pfalz for an undisclosed sum. The predecessor of LBBW was one of the country's first-ever savings banks, created in 1818 in southwestern Germany.

LBBW has 12,000 employees and over 200 branch offices with total assets of EUR 428bn . They also have branches in New York, London and Singapore - it also has owned the Baden-W├╝rttembergische Bank (BWBank), which has operated as an independent part of the LBBW group since 2005 in the Rhineland Palatinate.

LBBW will pay at least Euros 300 Mn. euros for Sachsen LB and immediately provide Euros 250 Mn. in cash for SachsenLB. A final purchase price will be set by the end of the year, LBBW said on August 27th in Stuttgart.

``Someone had to act because the bank faced a shortage of liquidity,'' LBBW Chief Executive Officer Siegfried Jaschinski said at a press conference yesterday, adding that the takeover will stabilize SachsenLB. ``With a bigger partner we don't expect the lender to need any more liquidity.''

There is an opt-out clause in the purchase agreement that would allow LBBW to abandon the deal if it discovers any unforeseen risks. SachsenLB may be worth between 300 million euros and 800 million euros, Baden-Wuerttemberg state Prime Minister Guenther Oettinger said.

The owners of SachsenLB, the state of Saxony and the Sachsen- Finanzgruppe, made up mostly of regional savings banks, will transfer their stakes to LBBW in return for cash and shares in the parent company. SachsenLB will officially become a subsidiary on Jan. 1 2008. For now it will be held on a trust basis.

A financial commentator in the German press said -" ``The first big step was the bailout and the takeover is about making sure it doesn't happen again, SachsenLB was too small to survive alone and now it's in stronger hands.''

At the same time Stuttgart-based LLBW is also holding takeover talks with Dusseldorf based WestLB AG.

LBBW has 428 billion euros in assets. A combination of LBBW, SachsenLB and WestLB, which has 285 billion euros in assets, would create Germany's second-biggest bank after Deutsche Bank AG.

Frankfurt based Deutsche Bank (DB) said on Sept. 4 it has leveraged- loan commitments of 29 billion euros ($41 billion), and may have to take a 625 million-euro charge in Q3.

DB Chief Executive Officer Josef Ackermann (pic) said in an interview in Berlin with Germany's ZDF television on September 20th - ``We have certainly also made exaggerated commitments in the whole euphoria,'' Ackermann didn't talk about profit targets in the ZDF interview. He said he would take a pay cut if the bank didn't meet its goals.

``If we earn half, then I should get half too, or even less,'' Ackermann said. He earned Euros 13.2 Mn. in 2006, 11 % up on 2005.

Ackermann also said he doesn't expect a run on deposits in Germany like Northern Wreck.
``German banks are well capitalized,'' he said. ``We finance much more through customers' deposits and we have deposit guarantee instruments that go much further than in England.''

Conclusion

Mervyn King was talking bollocks about EU legislation preventing such a deal for Northern Wreck. Swift, confidential, with no bank runs, virtually zero publicity and certainly no public panic - the Krauts can do it. In ten working days.

Would Mervyn, John Gieve and the wizards at the FSA offer to take a pay cut ?

Will the Directors still collect their handsome interim dividends on October 26th at Northern Wreck ?

1 comment:

George Dutton said...

"The major British bank Barclays is under scrutiny over its links to SachsenLB, the failed German state bank that was heavily involved in risky US subprime debt. Last May Barclays set up a fund on Sachsen’s behalf—Sachsen Funding 1—which had assets of about $3 billion, the majority of which was invested in securities based on prime and subprime US mortgages. According to a report in the Financial Times, Barclays exposure is in the “low hundreds of millions of dollars.”"

http://tinyurl.com/yubnl8

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