Dec. 11 (Bloomberg) -- Sparkasse Hansestadt Stralsund, one of the smallest of Germany's 500 savings banks, may become the first to be put up for sale, helping pry open a $1.2 trillion market that publicly traded competitors such as Deutsche Bank AG have been struggling to break into for more than 50 years.

Stralsund, a town of about 60,000 on the Baltic Coast in northeastern Germany, will vote today on whether to sell the savings bank, which has 160 employees and 39,000 clients. Stralsund's mayor Harald Lastovka is pushing for a sale to raise money for the harbor town's schools and kindergartens. Stralsund has already hired Lazard LLC to explore a possible sale.

``If approved, it'll be the first time a savings bank is privatized at least since World War II,'' said Konrad Becker, an analyst at Merck Finck & Co. in Munich. ``The big publicly traded banks need to gain more market share to improve earnings.''

Deutsche Bank, Germany's biggest bank by assets, and the country's top three publicly traded competitors HVB Group, Commerzbank AG and Allianz AG's Dresdner Bank have just 13 percent of Germany's retail lending market. They struggle to take business from savings banks and other state-owned competitors, whose government subsidies allow them to offer credit for less.

German banking officials including Commerzbank Chief Executive Klaus-Peter Mueller and Rolf Breuer, supervisory board chairman of Deutsche Bank, are calling for the government to reduce its ownership in the country's banks to encourage mergers among publicly traded banks, cooperative banks and savings banks to create more efficient companies that can compete with global rivals such as Citigroup Inc. and HSBC Holdings Plc.

`Opening Doors'

In total, about 40 percent of German retail lending is controlled by banks receiving state guarantees, the Bundesbank says, putting pressure on lending margins. The average interest margin at German banks is 1.3 percent, compared with an average of 3.4 percent for U.S. lenders and 1.8 percent at British banks, Deutsche Bank CEO Josef Ackermann has said.

Commerzbank's Mueller and HVB Group CEO Dieter Rampl have said they would be interested in buying savings banks. Ranked 424th among Germany's 500 savings banks, buying Stralsund wouldn't have a significant impact on the market share of one of Germany's biggest banks, though it would prompt more such sales.

A sale of Stralsund, which the city says has been valued by Lazard at between 30 million euros and 50 million euros, may also ``open the doors for international banks to buy German savings banks,'' said Kersten von Schenck, a partner at the law firm Clifford Chance, who specializes in banking regulatory law.

Political Opposition

SEB AB, the Nordic region's third-biggest bank, may consider buying Stralsund if it's put up for sale, Handelsblatt reported earlier, citing an unidentified SEB spokeswoman.

Still, many German regional politicians say savings banks should stay in public hands. The Finance Ministry of Mecklenburg- Western Pomerania, the state where Stralsund is located, says that a plan to sell the savings bank violates state law, spokesman Julius Geise said in an interview.

``Experience has shown that small companies in the region are dependent on savings banks,'' Geise said. ``Private banks have a different business'' and are more interested in boosting margins than in taking on smaller clients, he added.

A sale of Stralsund would be legal under German law provided it's conducted in the form of a transfer of assets, according to Clifford Chance's von Schenck.

``I think the Stralsund privatization will occur,'' Merck Finck's Becker said. ``It will lead to more such sales and reduce the number of players in the German banking industry. It may also lead to increasing prices for consumers.''

Last Updated: December 10, 2003 19:14 EST