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WestLB Wins EU Approval for German State Aid, Break-Up Plan

WestLB AG, a state-owned German lender bailed out during the financial crisis, won European Union approval for its rescue by the German government after it agreed to be wound down and broken up.

The European Commission in Brussels said it authorized 11 billion euros ($14.4 billion) in state aid for the transfer of assets to a bad bank after WestLB and its shareholders agreed to a restructuring plan to shrink into a so-called Verbundbank that will serve regional savings banks.

The plan “closes this chapter once and for all in the interest of a healthy and undistorted competition between banks and of the taxpayers themselves who have already paid a high price,” EU Competition Commissioner Joaquin Almunia said in an e-mailed statement today.

The commission decision on WestLB ends one of its longest-running banking state-aid cases. The Brussels watchdog is responsible for scrutinizing large state payments to lenders that needed help during the financial crisis. It forced bailed-out banks to shrink balance sheets and change the way they do business to mitigate market distortions caused by billions of euros in government subsidies and guarantees.

‘More Optimistic’

Almunia said he was also a “little bit more optimistic” about negotiations on the restructuring plan of Munich-based Bayerische Landesbank, the last German government-owned bank to require EU approval for a 2008 state bailout.

“Some discussions” are still needed on sharing restructuring costs between shareholders and the regional government, he told reporters. The timing of an EU decision on BayernLB “does not depend on us, it depends on them,” Almunia said. “We cannot decide on their behalf.”

The approval of WestLB’s aid is “important” for securing the financial system of Germany, said Norbert Walter-Borjans, the finance minister of the German state of North Rhine-Westphalia, where WestLB is based.

Today’s decision heralds “painful job cuts” as well as “necessary clarity” for customers, employees and investors on the future of the bank, said WestLB Chief Executive Officer Dietrich Voigtlaender in a statement on the bank’s website.

WestLB, the third-largest government-owned German bank, needed bailouts from its owners, including the German state of North Rhine Westphalia and the country’s federal government, after running up losses in 2008.

Lending Unit

Under WestLB’s revamp, business related to savings banks, which includes a lending unit that serves medium-size companies and has a balance sheet of as much as 45 billion euros, will be transferred to a new credit institution on June 30, the German bank said earlier this year.

Operations that aren’t sold by June 30 will be transferred to WestLB’s bad bank. North Rhine-Westphalia will take on the ownership responsibility for the rest of the bank, while the savings bank associations, which hold about 50 percent of the lender, will cease to be shareholders.

WestLB’s real-estate unit, Westdeutsche Immobilien Bank, may be transferred to the bad bank if it isn’t sold before mid-2012, Almunia said.

WestLB said last week that the planned sale of the unit, known as WestImmo, to Apollo Global Management failed because the price was “not acceptable.” WestLB rejected other bids for WestImmo causing the bank to miss a previous EU deadline to sell the division by the end of 2010.

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