Global Economics

BayernLB Shocks with $6.7 B Writedown


Investments by Germany's second biggest state-owned bank have lost twice as much in value as predicted earlier this year

Germany's second biggest state-owned bank, Bayerische Landesbank, revealed Thursday that the global credit crunch has cost the bank €4.3 billion ($6.7 billion) — far more than it had previouly predicted and more than any German state-owned bank has suffered so far.

BayernLB, which is based in Munich, reported writedowns of €2.3 billion in 2007 and another €2 billion for the first quarter of this year as a result of the fallout from the US housing market crisis.

During a presentation of the bank's results Thursday, the company said that €24 billion of its assets were at risk of devaluation. The bank and its owners, the state of Bavaria and the Bavarian Association of Savings Banks, have agreed to cover as much as €6 billion in possible losses from those assets, which will be shifted to a new finance affiliate.

So far, the fallout from the credit crisis has led German state-owned banks to write off over €11 billion from their investments. On Wednesday, Germany's third biggest state-owned bank, WestLB, reported it had lost €1.6 billion in 2007 after the credit crunch cost it over €2 billion last year.

"What the real fallout will be, nobody knows right now," said Michael Kemmer, BayernLB's chief executive. He added his company was taking the financial crisis very seriously "even though our bank is not immediately threatened."

BayernLB first admitted in August 2007 that it would have to make large writedowns because of the financial crisis. In February the bank estimated that writedowns for last year would total €1.9 billion — although some observers said at the time that that figure was too low.

A few days after that announcement, Werner Schmidt, the long serving CEO, was fired, to be replaced by Kemmer. Another casualty of the BayernLB writedowns is the company's chief risk officer, Gerhard Gribkowsky, who was fired on Wednesday.

Despite the multi-billion writedowns, BayernLB still managed to post a profit of €175 million last year, down from €989 million in 2006.

Provided by Spiegel Online—Read the latest from Europe's largest newsmagazine

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