EU May Demand New WestLB Cutbacks

BRUSSELS (AP) — EU regulators warned Wednesday that they may make new demands for cutbacks at Germany's state-owned WestLB bank after the government announced a fresh capital injection of up to euro4 billion.

The European Commission last May ordered WestLB to shrink its business by half in return for a massive shot of state aid to help it weather last year's financial crisis. That aims to compensate for the competitive advantage that the bank received from state help.

EU spokesman Jonathan Todd said regulators would also have to examine the new recapitalization "and one possibility is that further conditions may be required for approving the additional money."

The EU executive must still approve the creation of a "bad bank" that will buy up WestLB's problem assets — securities that have plunged in value — removing massive potential losses from its balance sheet to allow it to return to profit.

One of the first European victims of the banking crisis, WestLB is being forced by the EU to undergo a major restructuring that will see it give up high-risk proprietary trading of stocks, bonds and options — and shrink its assets by 50 percent. WestLB had total assets of euro288.1 billion at the end of 2008.

The bank is entirely owned by the German region of North Rhine-Westphalia and acts as a central bank and link to global financial markets for savings banks in the regions. It will now have to find a new buyer by public tender before the end of 2011.

WestLB is one of 12 public sector banks in Germany that oversee the various Sparkassen, or savings banks, that are found in nearly every German city and town. The Landesbanks are a backbone for consumer banking and lending for German citizens.