Sachsen Landesbank Rescue Package Could Run Aground

by Stewart Douglas

Story link: Sachsen Landesbank Rescue Package Could Run Aground

The future of troubled German bank Sachsen Landesbank has today been thrown into further doubt with the revelation the lender Landesbank Baden-Wuerttemberg may be considering ditching its bid for the sub-prime hit mortgage lender.

LBBW had been expected to mount a serious bid to rescue Sachsen Landesbank earlier in this year, and was expected to be nearing the conclusion until it was today announced that it may have stumbled after a disagreement with the German state of Saxony over the issue of outstanding losses held by the bank.

Sachsen Landesbank had been one of the worst hit European lenders in the midst of the recent market collapse in the sub-prime sector, which has seen the bank lose out substantially over its exposure to sub-prime debt, leading to liquidity problems across the board.

The LBBW had been expecting Saxony to cover the losses of the bank up to around 4 billion euros, which reflects a 2.5 billion euro surplus over the existing equity value of the company, which has proven to be a sticking point with the authorities.

Although Saxony officials have yet to comment on the situation, LBBW has today stressed that the financial assistance of the authorities is a critical element of any rescue bid, and will be crucial to securing their support for the bank.

Whilst negotiations are expected to continue over the next few weeks, it is thought that this will continue to prove a sticking point for both banks and the Saxony authorities.  It is expected that representatives from both banks and the authorities will meet within the next few days along with those from the German banking regulator Bafin.