Wednesday, December 12, 2007

Sachsen LB " Bailout Is Equal to 25 Percent Of State´s Annual Budget"

Scandal after scandal is creeping up in the German banking province. After the $ 7 billion IKB bailout the Sachsen LB saga is highlighting how far things have gone. But what do you expect when a bank with a € 68 billion balance sheet has off balance sheet vehicles including lots of toxic paper ... And the next possible baliout is already in the making... UPDATE: Guarantee "only" € 2,75 billion, bringing the percentage down to 16 of the budget . And when you put the the purchase price of roughly € 300 million in perspective with the core capital of € 1.5 billion ( latest available figure) the real loss for the Saxony taxpayer is getting worse. Der Spiegel is reporting that the entire risk associated with the SachsenLB which is shouldered somehow via state owned entities is a whopping € 17.5 billion. Here the Bloomberg Version LBBW, SachsenLB Agree on Risks, Pave Way for Takeover

Ein Skandal folgt dem nächsten in der deutschen Bankenprovinz. Nach der staatlichen IKB Infusion von knappen 7 Mrd. $ durch die KfW dürfte bei der Sachsen LB die Fortsetzung folgen. Was soll man auch anderes erwarten wenn es zugelassen wird das eine Bank mit einer Bilanzsumme von 68 Mrd € ausserbilanzliche Verpflichtungen inklusiver Mrd. an Schrottpapieren eingeht . Selbstverständlich ohne von der Aufsicht Bafin belästigt zu werden..... Der nächste mögliche Baliout dürfe uns bald aus dem Westen der Republick drohen.... Update Wie ein sächsischer Regierungssprecher am Donnerstag mitteilte, übernimmt Sachsen eine Landesbürgschaft von 2,75 Mrd. Euro. Wenn man jetzt den Kaufpreise von knapp über 300 Mio € ins Verhältnis zu dem Kernkaital von 1,5 Mrd € ins Verhältnis setzt wird schnell deutlich das der Steuerzahler noch erheblich hat mehr bluten müssen..... Der Spiegel Insgesamt ist das Rettungspaket deutlich größer als die Bürgschaft des Freistaats Sachsen. Finanzkreisen zufolge werden Gesamtrisiken von rund 17,5 Milliarden Euro abgesichert. Diese Risiken sollten in ein neu zu gründendes Vehikel gepackt werden, sagten mehrere mit der Angelegenheit vertraute Personen der Nachrichtenagentur Reuters. Möglicherweise entstehende Verluste von bis zu 2,75 Milliarden Euro werde das Land Sachsen tragen, darüber hinausgehende Verluste von bis zu 6,4 Milliarden Euro übernehme die LBBW. In der nachgelagerten Haftung stünden die anderen Landesbanken mit rund 8,5 Milliarden Euro, hieß es. Die beteiligten Banken lehnten einen Kommentar ab.


The state of Sachsen is forced to guarantee close to € 4.3 billion to complete the fire sale of their state owned ( through several enteties) Sachsen LB to LBBW (another Landesbank). LBBW is threatening to cancel an earlier agreement to buy the troubled Sachsen LB after they have discovered that the losses from the Irish off balance sheet vehicle are far greater than expected. The amount is is equal to 25 percent of Sachsen annual budget! If Sachsen is forced to pay the "claim" the debt per person would increase from € 1000 to € 4.800.

Der Landesbank droht die Schließung / FAZ
Freistaat soll mit einem Viertel des Haushalts bürgen
Die LBBW hat fragwürdige Engagements der Bank und ihrer irischen Tochtergesellschaft Sachsen LB Europe in Höhe von etwa 43 Milliarden Euro ermittelt. Wegen Fehlspekulationen am amerikanischen Immobilienmarkt fürchtet man hier Ausfälle in bisher unbekannter Höhe. Die LBBW will die Sachsen LB deshalb nur übernehmen (hier das Posting von der ursprünglichen Vereinbarung aus dem August), wenn der Freistaat Sachsen für die möglichen Ausfälle in Höhe von mindestens 10 Prozent oder 4,3 Milliarden Euro bürgt. Das entspricht mehr als einem Viertel des sächsischen Landeshaushalts. Träte die Zahlungspflicht ein, würde sich die Pro-Kopf-Verschuldung des kleinen Bundeslandes um etwa 1000 Euro auf 4800 Euro erhöhen.


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15 Comments:

Anonymous Anonymous said...

Seems like they might have been drinking beverages bottled in the U.S.

Sub-Prime Cola (TM), perhaps?

10:37 PM  
Blogger jmf said...

:-)

10:42 PM  
Anonymous eh said...

The state of Sachsen is forced to guarantee close to € 4.3 billion to complete the fire sale of their state owned Sachsen LB...

The idea of the government owning a bank seems odd until you remember that Sachsen is in what used to be East Germany (normally a government may take only temporary control of a bank, zB when it is insolvent). But maybe western Länder also own banks?

Most Americans -- even the vast majority of them -- would be very surprised to learn that the US Federal Reserve is actually privately owned.

An interesting quote from Thomas Edison:

If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.

11:49 PM  
Anonymous eh said...

And regarding the bailout of Sachsen LB: because Sachsen is in the former East Germany, it (immer noch) suffers from significantly higher Armut und Arbeitslosigkeit than the western Länder, so from that standpoint this bailout is doubly bad -- it is rather obvious that this money could be put to much better use.

11:53 PM  
Blogger jmf said...

Moin Eh,

ich meine mit "state onwed" natürlich auch die im Prinzip unabhängigen Sparkassen. Bar mit Ausnahme von einer Handvoll sind ja auch diese vollständig im Besitz der Gemeinden, Kreise etc.

Das wird der Regierung sicher die Wiederwahl kosten.

Immerhin!

12:10 AM  
Anonymous Anonymous said...

Hängt Sie höher

2:20 AM  
Blogger jmf said...

Der eigentliche Skandal ist ja leider das all die Verantwortlichen extrem weich fallen und kaum Konsequenzen zu befürchten haben.

Selbst der Hauptverantwortliche der IKB soll noch über 1 Mio für das Jahr 07 erhalten haben.

Kein Wunder das einigen da die Hutschnur hochgeht.

2:34 AM  
Anonymous Anonymous said...

Eh says: "Most Americans don't know that the Fed is privately owned". The German media do not know this either.
Out of curiosity, asked friends in US 'is FED a government institution', the answer always 'sure' (with the little frown, indicating 'what a dumb question by a foreigner'). And you know, I did not know this either (until a year ago when I watched the money masters).
In Germany, they also think that the Bundesbank is a bank owned by the Bund, i.e. German state. One just has to look at the name, why else would it be called the bank of the 'Bund', or federation? Oh, the power of names...

2:59 AM  
Anonymous Anonymous said...

I have a question: Are tax payers/the public on the hook for these losses and if so what are the amounts owed per person?

Barley

8:07 AM  
Blogger jmf said...

Moin Barley,

so far the amount is only provided via a guarantee.

It remains to be seen how big the real losses will be when all the stuff from the SIV/Conduit is sold.

The losses up to € 2,75 billion will be eaten directly from the state Sachsen. I assume they will have to take on more debt when the new budget is due.

If the losses are higher the rest will be taken on via the LBBW and other Landesbanken.

The owners from the several Landesbanken are different public entities like the dominant domestic banking brand "Sparkassen".

As an example my former employee "Sparkasse Nordfriesland" is owned by all the cities, counties in Nordfriesland.

So strictly speaking the taxpayer is somehow on the hook. Either to direct losses leading to higher debt issuance from the state or indirectly via lower profits ( dividends ) that will make it to the local area or even worse higher cash infusions from the Sparkassen to the Landesbank to strengthen the capital, lower tax revenues because of the losses etc.

I hope this helps

8:39 AM  
Anonymous Anonymous said...

Three big events: BoE records loss of collateral, Applegarth leaves,and the recently recorded loss - all three of these lead me to believe, and it is just my opinion (!), Northern Rock might rollover. The two remaining bidders just have to sit back and wait for a cheaper deal. In the meantime I'll place a bet there is a 80% chance the Govt might take it over by Dec 22nd (or before year end). Just my opinions, mind you. Thoughts from the more educated readers on this blog..
Barley

8:46 AM  
Blogger jmf said...


Pulling the plug


Even the Economist favours a nationalisation....

8:55 AM  
Anonymous eh said...

Having turned to the Bank of England for an emergency bail-out in August, it is unable to repay its loans unaided.

Frage: Wasn't this situation forseeable? If the purpose of the "bail-out" was to get Northern Rock back on its feet so that it could return to profitable operation, then it was a massive failure. What was all the money it borrowed from the government used for? How much of that capital remains? Now it seems the taxpayers are on the hook for not only the deposits the government has now guaranteed, but also for the loan advanced to Northern Rock earlier (or at least a portion of it, depending on how much of that capital remains).

It seems it would have been better/cheaper for taxpayers to directly take over Northern Rock, pay off depositors, and then liquidate assets.

12:07 PM  
Anonymous Pancho said...

Hola JMF,

Do you think there will be an impact of the Sachsen LB-crisis on the unemployment rate in Saxony?

4:02 PM  
Blogger jmf said...

Moin Pancho,

i think this won´t have a direct effect outside the Landesbank.

If there is one silver-lining in the whole debacle it is that the long awaited consolidation between the Landesbanken is taking finally place.

11:43 PM  

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