WestLB: Battling To Get Off The Ropes

Can ex-boxer Thomas Fischer save Germany's public-sector bank from hitting the canvas?

Thomas Fischer took over the toughest job in German finance on Jan. 1. As the new chief executive of WestLB, the troubled public-sector bank, the 56-year-old Berliner must grapple with a balance sheet riddled with bad debts, low staff morale, and the prospect that the bank's AA-credit rating will be slashed when it loses the coveted state guarantees for its debt in July next year. The Düsseldorf bank has been laid low by years of politically motivated lending and a disastrous international expansion program. "Fischer must restore balance sheet strength and devise a convincing new strategy," says Stefan Best, an analyst who follows WestLB for credit rating agency Standard & Poor's.

The Deutsche Bank veteran, who has not yet spoken publicly about his plans, has told senior colleagues that his focus will be on restoring WestLB's earning power. Supervisory board chairman Bernd Lüthje says he is confident Fischer can do that. "After its restructuring, WestLB will return to its former profitability," he says. But fixing WestL's third-largest, with $360 billion in assets -- lost an enormous $2 billion in 2002 and $240 million in the first half of last year.

ANXIOUS POLITICAL BOSSES. Fischer's first task is to bring the bank back to profitability this year. His strategy: shedding noncore units and keeping a sharp eye on risks. Since he took over, WestLB has sold its London brokerage operation, Panmure Gordon, to Lazard for an estimated $18 million. The bank is also in the process of dismantling its London-based principal finance unit (a banking version of private equity), which under now-departed head Robin Saunders lost $880 million a year ago in a single soured investment.

Looking anxiously over Fischer's shoulder as he whacks away at WestLB's bad assets are the political bosses of North Rhine-Westphalia, the German state that owns a 43.2% chunk of WestLB's parent institution, Landesbank NRW, and the top execs of the state's two powerful savings bank associations, which own most of the rest. They're worried that WestLB will call on them to bolster its depleted balance sheet with fresh capital.

Admirers say that if anyone can sort out WestLB, it's Fischer. A former amateur boxer, Fischer served two stints at Deutsche Bank, most recently as the board member in charge of risk management -- a post he left in 2002 after losing a power struggle to CEO Josef Ackermann. Fischer also has a good grasp of the idiosyncrasies of the state sector, having served successfully as CEO of a Stuttgart savings bank from 1995 to 1998.

The big question is whether Fischer can come up with a strategy that will boost WestLB's earning power before the middle of next year. When the bank loses its state guarantees -- the result of a 2001 European Commission ruling that the guarantees constituted an unfair subsidy -- its rating will fall two or three notches. If it falls as low as BBB, that could cost the bank as much as $500 million a year in extra borrowing costs. Fischer must increase the bank's profitability and come up with a credible long-term strategy if he is to persuade the rating agencies to give WestLB a higher rating.

His best bet of doing that, analysts say, is to forge closer ties -- and possibly merge with -- some of the savings banks with which WestLB is affiliated. They could provide the bank with cheap funds from their depositors as well as a range of business opportunities. Fischer also needs to start lending more to the Mittelstand, the small and midsize companies that are the backbone of the North Rhine-Westphalia economy.

For Fischer, WestLB represents the ultimate management challenge. If he can't put it back in the black in a reasonable amount of time, the bank will likely be broken up and its assets sold off. That's the knockout blow this boxer wants to avoid.

By David Fairlamb in Frankfurt

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