Sachsen LB Takeover Move To Proceed

by Stewart Douglas

Story link: Sachsen LB Takeover Move To Proceed

The proposed takeover of troubled lender Sachsen Landesbank by German contemporary LBBW came one step closer today with the announcement that an agreement has been reached with the state of Saxony over financial guarantees for current potential liabilities.

The takeover bid was thought to have run aground after arguments over who would foot the bill for potential liabilities of the sub-prime stricken lender, which totalled far in excess of its equity valuation, after the Saxon authorities said they would initially not be prepared to contribute financially.

However, after a change of heart by the authorities and a compromise on the part of LBBW, Saxony will now guarantee up to £2 billion of the bank’s outstanding potential obligations, subject to the approval of the local parliament.

It is thought that LBBW will come away from the deal feeling as if they have achieved their initial objectives, which were to secure the potential for losses arising from current exposure held by Sachsen.  With the guarantee now likely to proceed from Saxony, it is expected that the deal will proceed before the start of the new year.

The move is designed as part of a wider rescue proposal for Sachsen, which has been strongly hit as a result of the collapse of the sub-prime sector.  Having fallen on liquidity shortages, the bank faced similar problems to that of Northern Rock, which is also currently in the midst of takeover talks.

After coming from the brink of bankruptcy, Sachsen is expected to be bought over by LBBW following the approval of the local authorities, which would ultimately see the bank rescued from financial ruin for the benefit of its employees and customers, many of whom still hold mortgages with the lender.