The European Commission has extended its ongoing state aid investigation into Westdeutsche Landesbank (WestLB) after reaching the conclusion that the bank has received an estimated €3.4 billion more in state subsidies than foreseen initially in the process of transferring its portfolio of impaired assets to a bad bank.
Before the Commission can approve the aid, which comes on top of the support received by the bank since the start of the financial crisis, further restructuring measures to address the distortions of competition, or alternatively, its gradual reimbursement, should be considered. In the meantime the Commission continues to doubt the viability of the bank.
“Our estimate is that WestLB has received a further €3.4 billion in the process of transferring its toxic and other impaired assets to the bad bank, bringing the total amount in this regard to €6.95 billion. At this stage either the German government notifies further restructuring measures to compensate for the additional distortion of competition or the aid should be progressively clawed back. Therefore, our assessment of the viability of the bank depends on the way these options will be considered by the German authorities." said Commission Vice President in charge of competition policy Joaquín Almunia.
WestLB operates largely as central bank and provider of services for the saving banks of North Rhine-Westphalia (NRW), Germany's biggest regional bank network. It also has commercial and investment banking operations. The bank has received significant state support through repeated risk shields after its big structured securities portfolio resulted in heavy losses.
Subsequently, and as part of the restructuring plan, Germany set up a bad bank, the Erste Abwicklungsanstalt (EAA), to which WestLB hived off a portfolio of toxic and non-strategic assets representing approximately 30% of the bank's total assets with a view of their progressive liquidation. As the bad bank was expected to make losses, it received €3 billion in capital from State agency SoFFin.
© European Commission
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