April 28, 2013 1:21 pm

Landesbanken profits at highest since start of financial crisis

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Collective profits from Germany’s Landesbanken have reached their highest level since the onset of the financial crisis, showing a measure of recovery for a sector that was among the country’s biggest recipients of bank bailouts.

The Landesbanken are regionally-controlled banks that lend mainly to the corporate and public sectors and rely on market borrowing for most of their funding.

Stabilising the Landesbank sector became one of the most urgent issues for Germany’s government and financial regulators after four of the six largest Landesbanken by assets needed state aid in the wake of the financial crisis.

Landesbank Baden-Württemberg, the largest by assets, is expected on Monday to confirm preliminary 2012 results showing almost €400m of net income compared with €86m the previous year.

Altogether the five remaining banks in the sector have increased net income from about €800m in 2011 to €1.4bn in 2012, which includes a €124m net loss reported by HSH Nordbank.

Germany’s government has welcomed signs of recovery among the Landesbanken. Last week Angela Merkel, chancellor, said the sector had been “as far as possible put on a good footing”.

“The adjustment process that the Landesbanken had to undertake was naturally hard but is also a good example that something like that can be achieved,” she said.

However, some bankers and politicians say further reform is needed. One banker in the sector dismissed the idea that the Landesbanken were over the crisis.

Peer Steinbrück, the candidate of the centre-left SPD to challenge Ms Merkel in September’s election, said the sector “was still not sustainably positioned” even after €20bn of help from Germany’s regional and local governments.

“The consolidation process agreed in 2009 has ground to a halt,” said Mr Steinbrück. ”But I think further consolidation is vital.”

One Landesbank, Düsseldorf’s WestLB, was forced to close down by EU competition authorities with some functions taken over by Helaba, a Frankfurt-based counterpart.

Another, Landesbank Berlin, has been largely absorbed into Germany’s savings bank sector.

Two of the banks, NordLB and HSH Nordbank, are struggling with a sustained downturn in world shipping, where they are some of the most exposed lenders.

NordLB last week reported that net income had fallen from €536m to €80m after it took €500m of provisions related to its €18bn shipping portfolio. HSH Nordbank has warned that it expects its third consecutive annual loss this year.

Shipping would “remain the big issue” for NordLB in 2013, Gunter Dunkel, chief executive, said last week. “The first three months have been good operationally but the crisis in shipping has continued and will continue . . . there will be higher than average provisions again this year.”

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