Germany’s banks are in a mess. Two of the smaller Landesbanks, SachsenLB and IKB, were the first casualties of the credit crunch – imploding as they did way back in August.
Focus shifted when things started to go awry elsewhere in the world. Then Deutsche and Commerzbank allayed fears of a broader Germanic banking crisis by reporting limited losses.
But Germany’s regional banks are still deep in the subprime forest. According to Handelsblatt in a report on Thursday, the next few weeks will see the Landesbanken take significant writedowns. With talk of sector consolidation imminent, it’s all a tangled mess.
Handelsblatt point to SachsenLB, Landesbank Baden-Wurttemberg (LBBW), BayernLB and WestLB. All, of course, have rather large exposures to American mortgage securities. And the recent switch to IFRS accounting standards is expected to force them to mark far more of their assets than previously wanted to market.
Worst off, says Handeslblatt, is Sachsen, whose impending takeover by LBBW – initiated earlier this summer – could yet unwind if things get worse. The state of Saxony, reports the paper, is considering taking on some of Sachsen’s bad assets to sweeten the pill.
As the FT reported on Wednesday, LBBW itself (Germany’s biggest public sector bank), now also looks set to take a big writedown – an €800m hit – not insignificant for a regional mid-size lender.
As for WestLB and Bayern LB, the situation is grim. While LBBW has an estimated €9bn ABS portfolio, Bayern has around €15bn and West €25bn. Handelsblatt has unknown sources from the banks saying that writedowns will “run in the billions”. Based on LBBW’s writedown and portfolio size, that would seem pretty reasonable to expect.
(LBBW, meanwhile, must be thanking its stars that it didn’t go ahead and acquire WestLB – as it was planning to earlier this year.)
And finally, in this pitiful banking salmagundi, there’s also KfW and IKB. As FT Alphaville reported on Wednesday, KfW was having to double reserves set aside for the bailout it leads of IKB. KfW now has €5bn stashed for IKB. “Crucial” new information about the state of IKB’s ABCP conduit, Rhineland funding, precipitated the move.