A German bank, Bremer Landesbank, may be in need of a bailout. The bank is owned by Nord/LB, the city of Bremen and the savings banks association in North Rhine-Westphalia. Initially, the three groups discussed a capital increase at the banks, as well as potentially a buyout or transfer in ownership to Nord/LB. Nevertheless, on July 7, Prime Minister of Lower Saxony Stephan Weil declared that there will be no capital support from Lower Saxony and Bremen for the struggling bank.
Troubles in the shipping industry left a range of German lenders — from banking giant Deutsche Bank to smaller banks like Bremer Landesbank and its peer Nord/LB — grappling with the impact of losses from shipping loans. The shipping industry’s problems prompted Bremer Landesbank, which had assets of about 29 billion euros ($32 billion) at the end of 2015, to announce that it would have to have to take losses worth several hundred million euros.
European regulations prohibit states from directly injecting funds into banks without investors and shareholders of the bank sharing the burden of losses. These rules were designed in large part due to German concerns that Berlin and European institutions would have to bail out eurozone financial institutions, or that some eurozone governments would inadvertently create expectations of state assistance for failing banks.
Bremer Landesbank may not be a banking giant, but how Germany will address the bank’s challenges will be key for several reasons. First and foremost, how the German leadership and regulators proceed with regards to Bremer Landesbank will provide insight into how worried they are about the stability of the German banking sector as a whole. Second, eurozone countries, especially Italy, will be watching the bank closely for signals that Germany is using a double standard, allowing legal loopholes to be used to assist its own banks, while being stringent on bail-ins for banks in other eurozone countries.
It may very well be that the bank’s owners find a compromise that does not entail a direct injection of capital into the struggling bank. But Bremer Landesbank will still be a critical test for Germany, as the country slowly begins addressing its mounting banking woes.