Last updated: April 20, 2014 6:52 pm

KfW presses regulators to take investment arm off ECB list

One of Germany’s largest banks is continuing to push regulators to take its investment banking arm off a list of the eurozone’s biggest lenders to be supervised by the European Central Bank from November.

State-owned KfW, the Frankfurt-based development bank, is lobbying for KfW Ipex, its investment bank, to remain under national supervision on the grounds that its parent group is in the ownership of the German government.

KfW Ipex is on a list of 24 German lenders that will make up 128 banks across the eurozone deemed significant enough to be supervised directly by the ECB from November.

The investment bank, which specialises in international and export finance, was forced to become a separate legal entity from its parent KfW in 2008 following concerns over unfair competition from the European Union.

Ulrich Schroeder, head of KfW, said last week on the sides of a press conference in Frankfurt that talks with regulators were ongoing, after announcing in February that talks had begun.

In the meantime, KfW Ipex is undergoing the ECB’s asset quality review and stress tests this year that seek to identify any holes in the balance sheets of the eurozone’s largest lenders.

As one of the largest shipping lenders in Germany with more than €14bn in loans, KfW Ipex has suffered alongside other German lenders including HSH Nordbank, Commerzbank and NordLB in the aftermath of the financial crisis amid the slowdown in global shipping.

Unlike its parent company, KfW Ipex is not forbidden from competing with private banks.

However, the investment bank revealed stronger figures for 2013 last week with a rise in net income from €17m in 2012 to €85m last year as it reduced its risk provisions while warning that the shipping slowdown was continuing to have an impact.

Ipex’s parent company KfW has come under criticism in the past for its bulging balance sheet and high profit levels with net income totalling more than €2bn in 2012.

The bank benefits from a triple A rating due to its government ownership and funds itself largely through the capital markets, where its debt is often seen by international investors as a proxy for German Bunds.

The bank was set up in 1948 as part of the US-backed Marshall Plan to help rebuild the German economy after the war.

Lending to small and medium-sized companies as well as encouraging investment in energy efficiency are among its main goals.

Last week, KfW revealed its net income had nearly halved for 2013 to €1.3bn, which it described as earning power “normalised at a high level”, while it shrank its balance sheet below €500bn to €465m.

KfW Ipex contributed just over a third of total net income towards KfW’s overall results for 2013 with €437m.

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