Bloomberg News

LBBW Returns to Annual Profit After Three Years of Losses

March 15, 2012

Landesbank Baden-Wuerttemberg, Germany’s biggest state-owned lender, returned to an annual profit in 2011 as reduced provisions for risky loans helped snap three years of losses.

Net income was 87 million euros ($114 million) after a loss of 363 million euros in 2010, the Stuttgart-based lender said in an e-mailed statement today. LBBW booked charges of about 940 million euros related to the sovereign-debt crisis last year.

LBBW, led by Chief Executive Officer Hans-Joerg Vetter, is cutting about 2,500 jobs by 2013. As part of a restructuring agreement reached with the European Commission, the lender agreed last month to sell its LBBW Immobilien real-estate unit to a group led by Patrizia Immobilien AG (P1Z) for 1.44 billion euros in Germany’s biggest property deal since 2008.

LBBW aims to increase its earnings this year if there are no “dramatic dislocations” in capital markets, Vetter said.

About 680 million euros of the charges on Europe’s sovereign debt crisis were related to writedowns on Greek bonds and the sale of the credit default swaps that LBBW held on securities issued by the country, Vetter told reporters in Stuttgart today.

The lender was able to cut loan-loss provisions by 68 percent to 152 million euros thanks to the favorable economic development in its core markets, according to Vetter. Last year’s figure shouldn’t be seen as “sustainable,” he said.

Risk-Weighted Assets

Last year’s result was helped by lower losses on financial instruments booked at fair value, with a charge of 33 million euros compared to 657 million euros a year ago.

Risk-weighted assets were reduced to 108 billion euros from 121 billion euros a year earlier, and the core capital ratio improved to 12.9 percent from 11.4 percent. LBBW said it’s still discussing with its owners converting capital instruments to make them compliant with new Basel III definitions for banks.

LBBW had to restructure its operations on European Union orders after the company’s owners, including the state of Baden- Wuerttemberg and regional savings banks, had to bail it out with 5 billion euros of capital during the financial crisis.

As part of the restructuring, the lender has already cut about 2,000 positions by voluntary measures such as early retirement or partial-retirement, it said.

Replenishment Priority

LBBW said in a separate statement that it generated net income of about 400 million euros in 2011 under German HGB accounting rules, allowing it to replenish profit participation certificates and silent partners’ contributions in full.

“As replenishment has a higher priority, it is likely that no distribution will be made on the profit participation certificates and silent partners’ contributions for 2011,” the company said in the statement.

Silent partners’ contributions are funds German state-owned lenders received from their owners -- savings banks and state governments -- and that confer no voting rights. They were also used by the German government to recapitalize lenders including Frankfurt-based Commerzbank AG during the financial crisis.

A further consolidation of German state-owned lenders, or Landesbanken, including LBBW, Munich-based Bayerische Landesbank (BLGZ) and Landesbank Hessen-Thueringen, is currently “not a topic,” Vetter said today. Landesbanken serve as savings banks’ central banks and clearing houses in Germany.

To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Edward Evans at eevans3@bloomberg.net


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