Monday, December 1, 2008

Gimme more, gimme more!

Pointing out that Bayern LB is a "system-relevant" bank, a term that has been used by the government to denote banks that the could expect to be saved from collapse without mentioning specific names, the State of Bavaria (whose heraldic animal is a lion) has recapitalised the bank by EUR 10 billion. Bayern LB's loss-making ABS investment portfolio has been ringfenced by an injection of a further EUR 6 billion and by applying for a EUR 15 billion guarantee from the German Financial Market Stabilisation Fund (SoFFin). The Bavarian Sparkassen (regional savings banks) - previously large shareholders in Bayern LB - were apparently unwilling to take the risk of further investments and abstained from participating in this raise of the bank's capital.

The announcement of the above mentioned measures comes with plans to dramatically reduce the bank's headcount. Around 5,600 staff out of the Group’s total 19,200 will be affected. Staff reductions will be implemented over the five years to 2013. At least 1,000 jobs will be lost at BayernLB in Munich and the branch offices, about 200 outside Germany.

The banks press statement (click here) announced a new business model, re-focussing on Bavaria, Germany and certain European countries. International activities will be scaled down considerably. In a contradictory statement the bank announced that "BayernLB will be exiting from Asia completely. The Hong Kong and Shanghai branches and Beijing, Tokyo and Mumbai representative offices will be closed down, along with, in Europe, the Milan branch. The New York and London branches, which are key to the German customer business, will be streamlined considerably."

In the next sentence the "complete withdrawal from Asia" is relativised sentence by stating that "the German Centres in Shanghai and Delhi.Gurgaon, where BayernLB will continue offering support to German middle market companies looking to do business in the emerging markets of China and India" will be unaffected.

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