Two of Germany's public-sector wholesale banks, Bayern LB and WestLB, said Monday they will consider a merger -- a move that came amid mounting pressure for consolidation of the so-called Landesbanken.
BayernLB and WestLB said they aim to decide by the end of this year "whether a merger makes economic sense."
The Landesbanken are owned by a combination of regional governments and municipally backed local banks. They traditionally help fund local businesses.
However, big bets on global financial markets and large investments in securitized debt linked to the U.S. subprime housing market saw several of them rack up huge losses that forced the German government to bail them out.
All seven Landesbanken passed recent European "stress tests," but officials would like to see reform of the sector after years of talk about possible consolidation.
Also on Monday, Finance Minister Wolfgang Schaeuble invited his state-level counterparts and regional banking officials to a meeting Sept. 28 to discuss the banks' future.
German Economy Minister Rainer Bruederle said the merger talks were overdue and urged Germany's state governments "to take advantage of the moment," given that "substantial sums of money have been burnt," the German news agency DAPD reported.
In the early days of the financial crisis, Saxony's SachsenLB was sold hastily in 2007 to a larger peer, Landesbank Baden-Wuerttemberg, after news emerged of its exposure to subprime real estate loans.
"Now is the right time to start the consolidation process," WestLB CEO Dietrich Voigtlaender said. "A merger of WestLB and BayernLB could result in a strong, competitive corporate financing bank based in two of Germany's most important economic centers ... and focused on Germany and selected international core markets."
Bavaria's BayernLB and North Rhine-Westphalia's WestLB will focus on issues such as "the strategic positioning of the combined bank, funding, and the risks and opportunities of merging," according to a joint statement.
"Given the number of complex issues, it remains open if the talks will ultimately be successful," they said.
Both banks ran into trouble during the financial crisis. WestLB last December became the first bank in Germany to set up a "bad bank" to offload troubled assets that lost their value in the financial crisis.
Additional pressure on the Landesbanken comes from this month's agreement on the so-called Basel III rules, which will gradually require banks to hold greater capital buffers to absorb potential losses.
North Rhine-Westphalia's state finance minister, Norbert Walter-Borjans, said that along with pressure from the European Commission "is noticeably bringing movement to the story."
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