BayernLB to Tap Government Bailout Package

Bavaria's public sector bank BayernLB will tap the German government's 500 billion euro ($673 billion) rescue package for billions of euros, Bavaria's state Finance Minister Erwin Huber said on Sunday.

Huber told Bild newspaper in an interview to be published on Monday that the bank's supervisory board would meet on Tuesday to discuss the package after Commerzbank's chief executive on Saturday indicated it might also seek funds.

But rival Deutsche Bank will not, their chief executive Josef Ackermann said.

"We're taking a concrete look at that (rescue package)," Huber, who is also the supervisory board head of BayernLB, told Bild. "At stake are billions of euros. The federal government's involvement is a type of capital increase and that would include it getting a corresponding say in the matter."

He added that BayernLB would now be going through a major restructuring.

On Saturday, Commerzbank CEO Martin Blessing told Bild: "We will calmly review exactly how the package looks and if it is an option for us. I believe it is the duty of every banker to review participation in the programme because the ability to give more loans -- which is crucial in a downturn -- depends on capital strength." He noted in the interview that Germany's second-biggest commercial bank had chipped in to help rescue stricken peers IKB and Hypo Real Estate.

"But if the banks had the money to resolve this massive crisis alone then we wouldn't need this assistance package. That is why the state guarantees are so important now," he said.

Deutsche Bank CEO Ackermann took a harder line in an interview with Bild am Sonntag that appeared on Sunday.

"Deutsche Bank does not need any capital from the state," he said, insisting Germany's biggest bank was "at no point" in serious danger despite the market turmoil that has paralysed the global financial system and brought down some major rivals.

"We are one of the strongest and best capitalised banks in the world. We won customers, deposits and market share in the crisis," he added.

Who Goes First?

German lawmakers approved the package on Friday as part of a coordinated European Union attempt to restore confidence in a shaken financial system. It takes effect on Monday.

German banks have been reticent about stepping forward to accept the help for fear it would send the wrong signal to hypersensitive financial markets which have been quick to punish the weak.

Focus magazine reported that German banks were considering a joint approach to tapping state funds that would avoid stigmatising the bank which went first.

It quoted an unidentified savings bank official as saying it was possible "that all banks agree to take a big step together" and join the package.

Klaus-Peter Mueller, head of Germany's banking association, told news magazine Der Spiegel he did not expect to see the state take control of a big German bank along the lines of the deal with Royal Bank of Scotland in Britain.

"Now we have an internationally coordinated stabilisation package so the chances are good that the banking market stabilises," Mueller was quoted as saying. "I also believe that every bank that accepts help now will get out from under the state umbrella as quickly as possible."

Deutsche's Ackermann said only time would tell whether the state would have to take over a German bank. "In any event what cannot be allowed is that banks in need of help do not take up the assistance on offer out of false ideas of prestige. Whoever lacks adequate capital should get it from the free market or the state," he told the paper.

But he also questioned whether restricting executive pay to 500,000 euros for banks taking part in the scheme was wise. "You will not get the best people for that," he said.

He said German banks' profitability was set to slip amid an economic downturn and tougher regulatory rules on capital. "I expect as a result lower margins in the next few years."

WestLB and Bayern LB, the landesbanks of North Rhine-Westphalia and Bavaria, have already turned to their public-sector owners for billions of euros in guarantees after investments turned sour. Two other landesbanks, HSH Nordbank and LBBW, the country's biggest landesbank, have said they would look closely at the package.

-- Reuters corrected this story to show that at stake are billions of euros, not one billion euro as previously reported.

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