- The Washington Times - Monday, August 27, 2007

STUTTGART, Germany (AP) — Germany’s Landesbank Baden-Wuerttemberg will take over SachsenLB, a smaller public-sector bank that has been buffeted by its exposure to the U.S. subprime credit crisis, a German state governor said yesterday.

LBBW will pay $342 million to troubled wholesale bank SachsenLB as an initial measure, said Guenther Oettinger, governor of Baden-Wuerttemberg.

He said SachsenLB’s owners will transfer their holdings to LBBW and their value will be established at the end of this year. They will receive holdings in LBBW, and SachsenLB will become a unit of the larger bank at the beginning of next year.

“We see our responsibility to solve the problem,” Mr. Oettinger said. Earlier yesterday, he estimated SachsenLB’s value at between $410 million to $1.1 billion.

Defaults among subprime mortgage holders have roiled markets worldwide, and the effects have been felt keenly in Germany.

Mortgage bank IKB Industriebank AG has won help from several banks to protect its $11.1 billion exposure to U.S. subprime mortgage securities.

Germany’s bigger banks have so far reported only minimal exposure.

News of SachsenLB’s troubles emerged a week ago, when the Leipzig bank said it received a $23.7 billion credit line from other banks to help it counter risk from the subprime exposure of an Irish unit.

The daily Die Welt reported last week that a new liquidity gap totaling $547 million had been discovered. The bank declined to comment on that report, which came before weekend talks on SachsenLB’s future.

A person close to the negotiations, speaking on the condition of anonymity because of the sensitivity of the issue, said Germany’s financial services regulator, BaFin, had threatened to shut down SachsenLB if no agreement was reached yesterday on its sale.

Stefan Leusder, an executive who oversaw the bank’s capital markets operations, offered to resign Thursday. Both the bank and its state owners agreed to his request.

Sachsen-Finanzgruppe, which represents local savings banks and municipal authorities, holds about 63 percent of SachsenLB, with the eastern state of Saxony holding the rest.

“We hope that, with the backing of the Baden-Wuerttemberg [bank], this matter will be calmed and that normal business will again be possible starting Monday,” said Saxony Gov. Georg Milbradt.

LBBW chief executive Siegfried Jaschinski said the acquisition offers his bank new strategic prospects — pointing to business in eastern Europe and clients in eastern Germany.

Still, he said the agreement will allow LBBW to pull out of the deal if unforeseen risks emerge.

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