Merging banks

Two of Germany's state-controlled banks, hard hit by the financial crisis, are looking into a merger, they announced Monday. A tie-up of BayernLB and WestLB could repair remaining instability from financial market worries, some in the industry are hoping.

Indeed, reports said executives from the Duesseldorf-based WestLB met with their Bavarian counterparts on Monday to discuss the potential deal.

Banking group favors the merger

“In the coming months we will examine the creation of a common universal bank,” BayernLB CEO Gerd Haeusler said in a press release, while WestLB CEO Dietrich Voigtlaender painted a picture of a new banking powerhouse that would combine the “weighty economies” of both Bavaria and North Rhine-Westphalia.

The German Savings Banks Association released a statement in favor of the merger, saying, “further steps toward meaningful consolidation of the state-run bank sector should be considered.”

Some express caution

Despite the positive feedback from industry members and analysts, the announcement was tempered with caution, as the complexity of the proposed deal and wounds inflicted by the economic crisis appear prohibitive.

WestLB was one of four German state-run banks that were bailed out during the economic crisis spawned in 2008. WestLB received federal bailout funds of 3 billion euros (3.9 billion dollars), while BayernLB saw a cash injection of 7 billion from the state and a further 15 billion from the federal government.

The extent of the state aid meant that WestLB was required to find new ownership before the end of 2011, and a merger would also satisfy this requirement.

If the merger were to go through, the resultant bank would be the third largest in Germany, after Deutsche Bank and Commerzbank.

Author: Stuart Tiffen (dpa/AP)
Editor: Jennifer Abramsohn