The owners of West LB are set to stump up €2bn to help offset losses for last year at the German public sector bank and to absorb writedowns of about €1bn. The bank expects to report an annual loss of €1bn for 2007.
The German bank’s problems stemmed from losses on its proprietary trading desk last spring, and grew as turmoil hit in the summer.
The losses are one thing - and WestLB is lucky enough to have a state government in North Rhine-Westphalia which in December issued a statement to guarantee that WestLB (along with regional savings banks) would be provided with appropriate capital if needed.
But what is this:
Additionally, due to the present status of the portfolio valuations, the Managing Board expects non-permanent write-downs of almost € 1 billion.
That’s the other €1bn being put up - alongside the €1bn to plug the loss, itself the result of declining valuations and writedowns.
These “non-permanent” hits are later referred to as “non-P&L relevant valuations.” The German banks’ accountants, Ernst & Young, have been good enough under IFRS to sign off on the group’s classification of a portion of the unspecified assets as “available for sale” whereby falls (or rises) in value are logged against the balance sheet, rather than through the P&L.
To the beleaguered WestLB, it doesn’t make much difference to its capital position, hence the €1bn put forward to absorb these writedowns, as the bank continues discussions for a possible merger with publicly owned Helaba to strengthen its position.
What WestLB weren’t saying on Monday is on what assets these mark downs were made. Nor was there news on the status of its SIVs.
The bank in December said it was providing liquidity to Harrier and Kestrel, two SIVs managed by its subsidiary Brightwater, and last week added that it was considering bringing the vehicles onto its books. The pair in total weigh in at about about $13bn.
