The Saxon state government will meet in emergency session today to discuss the future of Sachsen LB, the state bank whose Irish subsidiary was thrown a €17 billion lifeline last weekend, writes Derek Scallyin Berlin
The bank has postponed by a week the publication of its half-year results as reports claimed yesterday that the debts of its Dublin subsidiary, Ormond Quay, may be higher than previously thought. Those claims will put pressure on Saxon politicians to demand a full picture of the bank's financial situation and to agree a takeover by another of Germany's regional state banks.
Stefan Leusder, the bank's board member responsible for the Dublin operation, resigned on Thursday, a month ahead of the end of his contract, and was no longer at the bank's offices yesterday.
Germany's Süddeutsche Zeitung newspaper published an unconfirmed report yesterday that the total off-balance sheet exposure of the bank's Dublin subsidiary was about €65 billion.
The German investor newspaper Platow Brief said that the Dublin subsidiary, Sachsen LB Europe plc, had invested up to €30 billion in conduits, of which €3.3 billion had flown into subprime credit.
Sachsen LB operates 20 to 30 so-called conduits, with five based in Dublin carrying names such as Ormond Quay, Georges Quay and Sachsen Funding.
Platow Brief said that the bank's second-largest conduit after Ormond Quay had a volume of about €5 billion. Unlike Ormond Quay, however, this conduit does not fall under the same state guarantee arrangement and its refinancing is provided by Barclays Bank. As a result, the newspaper suggested, it could be more difficult to cover any risks this conduit might encounter. In a worst-case scenario, Sachsen LB could be forced to cover the financial costs incurred by the €5 billion conduit should Barclays cap its involvement.
Sachsen LB denied the Süddeutsche report of a €65 billion exposure. In a statement, it said that this was "an approximate figure for the notional reference volume in which Sachsen LB Europe plc and other institutions are invested . . . and already includes the Ormond Quay structure".
It said that the bank's total volume of off-balance sheet investments, excluding Ormond Quay, was less than 5 per cent of that figure, or €3.25 billion.
"To say Sachsen LB needs a new, stronger partner is not new spectacular news - a letter of intent to that effect was signed in 2005," a Sachsen LB spokesman said yesterday.
Plans for another landesbank, WestLB, to take a 25.1 per cent share in the bank stumbled when it experienced its own financial difficulties. With the groundwork done, however, a Sachsen LB source said that a quick merger or takeover could be on the cards.
Today's meeting, headed by Saxon state premier Georg Milbradt, could have political implications in the eastern German state. In his previous position as state finance minister it was Mr Milbradt who allowed Sachsen LB to get further involved in international finance.
