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Landesbank Baden-Wuerttemberg only got $0.1 billion from AIG!

2 May, 2009

As long as I have begun talking about German banks who received a share of the AIG bailout funds, I think I will continue with the Landesbank Baden-Wüerttemberg which only received $0.1 billion  (isn’t it amazing how easily I can now use the word “billion” as if it actually meant something to me?).

LBBW is a state owned bank.  This bank was formed in 1818 as a savings bank for “the poor among the population.” (here)  Through a series of mergers the bank continued to grow and to do quite well.

It was not until 1999, however, that the bank took on its present form Landesbank Baden-Wüertemberg after a series of mergers.

Hence, this was the first vertical merger within the S Financial Group in the history of German Landesbanken. The former Landesgirokasse, as the second largest German savings bank, brought a strong retail banking business into the new bank, while the former SüdwestLB, on the other hand, had a comprehensive wholesale banking business. Thus, the new Landesbank Baden-Württemberg provided the full range of banking services.   [same link as above]

In 2005, the bank began a new series of acquisitions and mergers and that is what caused its first serious difficulties.  In  April 2007, LBWB acquired Sachsen Landesbank, a bank which was beginning to suffer from the fall-out of the U.S. sub-prime mortgage crisis.  As usual, it was the taxpayers ( German, this time) who were supposed to pay for the “bad judgement call” of bank executives, although LBWB’s CEO blamed the owner of Sachsen LB.

Wuerttemberg (LBBW) acquired its Sachsen LB unit from the state of Saxony and contends that the former owner must compensate it for losses not yet discovered at the time of sale. At worst, the eastern state could face a bill of 1.2 billion Euro under a guarantee it offered in the sale transaction, Jaschinksi said. “Even in the best case it will be several hundred million Euro.”   (here)

By December 2008, LBBW was projecting that its losses would be over €2 billion in the following year.  It was trying to raise fresh capital and was also considering accepting a “government rescue package.” (hereAlthough LBBW has sustained major losses they are still considered one of the three top banks in Germany.  They expect to halve their portfolio investments within three years and plan no new business in that area.  According to their Annual Press Conference Report (here):

Core operating business remains strong; Customer-oriented capital market activities and corporate client business have started well; With the strengthened capital basis, LBBW is very well positioned to use market opportunities in a difficult environment

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