German Savings Banks Said to Pull Out of BayernLB Deal

German savings banks have pulled out of a deal on restructuring Bayerische Landesbank which may endanger European Union approval of the lender’s state bail-out, according to a person familiar with the talks.

The banks have backtracked on an agreement on their level of contributions toward a restructuring plan that would have included the sale of its LBS Bayern mortgage lending unit, the person said on condition of anonymity today because the talks aren’t public.

Their withdrawal may endanger a deal with EU Competition Commissioner Joaquin Almunia, who told the Sueddeutsche Zeitung last week that EU officials were close to an agreement with the bank’s owners, which include the German state of Bavaria, on the terms for EU approval of BayernLB’s bailout.

The European Commission, the EU’s executive arm in Brussels, is examining the restructuring measures of lenders that needed state aid during the financial crisis. While regulators approved Germany’s bailout packages for HSH Nordbank AG and WestLB AG last year, they are still holding discussions with Munich-based BayernLB.

The bank is Germany’s second-biggest state-owned lender, and the last of the nation’s so-called Landesbanken to await the EU’s verdict on its bailout conditions.

The commission has required banks to shrink balance sheets and sell off assets to compensate for the harm to competition arising from state aid. As a last resort, it can force authorities to recoup the aid they have provided.

(Corrects name of BayernLB unit in second paragraph.)
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