Bloomberg News

BayernLB Says Full-Year Net Income Declines 84% on MKB Bank

March 29, 2012

Bayerische Landesbank (BLGZ), Germany’s second-biggest state-owned lender, said net income declined 84 percent last year because of a loss at its Hungarian subsidiary.

BayernLB posted net income of 104 million euros ($139 million) compared with 635 million euros a year ago, it said in an e-mailed statement today. MKB Bank (MKB), the lender’s Hungarian unit, had a loss of 392 million euros last year as the nation’s government forced banks to absorb mortgage losses.

The Munich-based lender, led by Chief Executive Officer Gerd Haeusler, is the last of Germany’s so-called Landesbanken to await a verdict from the European Commission, the EU’s executive arm in Brussels, on conditions for its bailout by the German state of Bavaria that included 10 billion euros in fresh capital. BayernLB scrapped its full-year earnings forecast in November, citing the new law for banks in Hungary.

“The bank performed successfully in its core business areas and proved its business model once again,” Haeusler said in the statement. “In the non-core business areas, several instances of government interference counteracted progress in restructuring BayernLB.”

Bank levies in Europe cost BayernLB 74 million euros last year, while the company’s participation in the restructuring of WestLB AG required provisions of 62 million euros, BayernLB said. It booked 140 million euros of writedowns on Greek government bonds. Since January 2012, the lender hasn’t held any Greek government bonds, it said.

Loan-Loss Provisions

Loan-loss provisions were cut by 21 percent to 548 million euros last year, BayernLB said. The lender aims for a “clearly positive” pretax result at its core business this year.

A book value writedown on the lender’s Budapest-based MKB Bank subsidiary, which BayernLB plans to sell as part of its restructuring, resulted in a 2011 loss under German accounting standards, BayernLB said on Jan. 12.

MKB Bank’s book value now stands at 350 million euros, Chief Financial Officer Stephan Winkelmeier said at a press conference in Munich today.

Because of the expected full-year loss based on German rules, BayernLB has said it doesn’t plan to make payments on non-voting capital instruments such as profit participation certificates and silent partner contributions for 2011.

Bailout Aftermath

BayernLB has been in negotiations with the European Commission since it was bailed out in 2008. The commission wants asset sales given that the bank accepted state aid, and that Bavarian savings banks, which owned a 50 percent stake before the bailout, contribute through measures including acquiring BayernLB’s mortgage-lending unit, LBS Bayern.

The company aims to pay back 5 billion euros in capital to Bavaria over the next five to seven years, Haeusler said at a press conference in Munch today.

“This could be done by using future profits, by freeing up capital through a reduction of risk-weighted assets, and by swapping from one capital provider to another, like from Bavaria to the Bavarian savings banks,” he said.

The EU is demanding Bavaria’s 72 regional savings banks share the burden as they didn’t participate in the lender’s capital increase, which resulted in a reduction of their stake to about 6 percent. Bavaria now owns 94 percent.

As part of its reorganization, BayernLB earlier this week agreed to sell its DKB Immobilien AG real estate unit to Hamburg-based TAG Immobilien AG (TEG) for 160 million euros in cash.

BayernLB also plans to sell its GBW AG real estate unit, of which it owns 92 percent. GBW owns about 32,000 homes in Bavaria, according to its website. The lender has agreed to hold exclusive talks with Bavarian municipalities about a sale.

The restructuring unit, which BayernLB has set up to wind down non-core assets including some asset-backed securities and loans, reduced its risk-weighted assets by 3.5 billion euros to 11.5 billion euros during last year.

Landesbank Baden-Wuerttemberg, Germany’s biggest state- owned lender, said on March 15 that it returned to an annual profit of 87 million euros in 2011 as reduced provisions for risky loans helped snap three years of losses.

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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