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BayernLB First-Quarter Profit Declines 64% on MKB Bank

Bayerische Landesbank, Germany’s second-biggest state-owned lender, said first-quarter profit declined 64 percent on losses at its Hungarian unit and on cross-currency swaps.

Pretax profit dropped to 54 million euros ($69 million) from 149 million euros a year ago, Munich-based BayernLB said in a statement today. MKB Bank, the Hungarian unit, had a pretax loss of 44 million euros in the quarter after a pretax loss of 33 million euros a year ago.

BayernLB, led by Chief Executive Officer Gerd Haeusler and majority-owned by the German state of Bavaria, is the last of Germany’s state-owned lenders, the so-called Landesbanken, to await a verdict from the European Commission, the European Union’s executive arm, on conditions for its state-bailout in 2008, which included 10 billion euros in fresh capital. The bank today confirmed a target to post a pretax profit in its business excluding MKB and its restructuring unit this year.

“We are on the right track,” Haeusler said in the statement. “We are making the bank slimmer, stronger and focusing it long term on its core business.”

The EU commission wants BayernLB to sell assets given that the bank accepted state aid, and that the Bavarian savings banks, which owned a 50 percent stake before the bailout, didn’t contribute enough to the lender’s recapitalization. The EU wants them to share the burden through measures such as the conversion of silent participations, a form on non-voting capital, into core capital and by acquiring BayernLB’s mortgage-lending unit, LBS Bayern.

Regulators are “at the end’ of their investigation, EU Competition Commissioner Joaquin Almunia said in Brussels on May 8.

Markdowns on Swaps

The company had 202 million euros of markdowns related to the mark-to-market valuation of cross-currency swaps and the revaluation of liabilities, BayernLB said. The cross-currency swap loss was 146 million euros in the quarter, the bank said in a presentation on its website. The swaps are meant to hedge BayernLB’s U.S. dollar refinancing, Chief Financial Officer Stephan Winkelmeier said in a media conference call today.

Loan-loss provisions rose to 53 million euros in the quarter from 49 million euros a year ago, BayernLB said.

BayernLB this year agreed to sell its DKB Immobilien AG real estate unit to Hamburg-based TAG Immobilien AG for 160 million euros. It also plans to sell its 92 percent stake in real estate operation GBW AG. The unit owns about 32,000 homes in Bavaria, according to its website.

BayernLB announced plans in 2008 to refocus operations and reduce the workforce by 2013. While the lender’s online venture, DKB Deutsche Kreditbank, is an ‘‘indispensable” part of the business, Budapest-based subsidiary MKB Bank might be sold at some point, Haeusler said in 2010.

BayernLB plans to pay back 5 billion euros in capital over the next five to seven years to Bavaria, which owns 94 percent of the bank, the lender said in March.

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