In an article released moments ago by Germany’s Handelsblatt titled a “Capital increase for ailing Landesbank is questionable“, the German paper writes that “shipping loans have brought Bremer LB into distress and the bank can not survive without government help, but a direct capital injection from Lower Saxony now looks unlikey.”
The punchline, and where the narrative veers dramatically from the smooth sailing scenario presented last month by the FT, is that according to “Lower Saxony’ President Stephen Weil, a capital increase by his state and Bremen for the ailing bank is currently not realistic. “The classic method, namely when partners provide the necessary capital, does not seem to work,” the Prime Minister said to the “Weser-Kurier”. But, he added, “we will make every effort to save the Bremer Landesbank.”
Bremer LB’s sudden fall from bailout grace appears to be the latest result of political conflict, because as Handelsblatt notes, Weil was responding to remarks by his colleague Carsten Sieling (SPD), who excluded capital support for the BLB. In a scenario that Italy is all too familiar with, Sieling said that such an action would not be in line with EU requirements.
In other words, Germany may now find itself in the ironic situation that its own bailout intransigence will force it to engage in a bail in for one of its bigger banks.
To be sure, it is possible that a solution is found, and Merkel will need to concede to not only a Bremen LB bailout, but one of Italy as well, as the two would go hand in hand. On the other hand, it just may be the case that Germany refuses to save even one of its own.
And while the final outcome remains uncertain, the market quickly read between the lines and responded in preparation for a worst-case outcome: in intraday trading the bank’s “equity-like” 9.5% Contingent Convertible bond of 2049 has plunged by almost half from 120 to 73 in minutes, a move which has likewise spooked broader global markets.
