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Report: NordLB's €3.6B recapitalization hits snag over local politics

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Report: NordLB's €3.6B recapitalization hits snag over local politics

The €3.6 billion state-backed recapitalization of Norddeutsche Landesbank Girozentrale is at risk due to an ongoing dispute between two of the ruling parties in the coalition government of Saxony-Anhalt, Reuters reported June 4, citing sources with knowledge of the matter.

Saxony-Anhalt owns a 5.6% stake in the German lender and is expected to contribute €200 million to the recapitalization package, the bulk of which is provided by NordLB's majority owner, the state of Lower Saxony.

The regional government in Saxony-Anhalt was supposed to sign off a state contract on the capital injection for NordLB June 3, but the state's finance minister, Andre Schröder, refused to do that, Reuters reported. The reason was a conflict between Schröder's Christian Democratic Union and its coalition partner, the Green party, the news agency said.

The conflict may cause a longer delay in the approval of the NordLB package because if the partners are arguing a majority vote cannot be achieved, Reuters said, quoting an insider. The CDU and the Greens have been in power in Saxony-Anhalt together with the Social Democrats since 2016.

This is not the only setback in NordLB's planned restructuring as recently the federal savings banks association DSGV was said to have had requested a delay just before the agreement on the bank's recapitalization was due to be notarized May 10. The DSGV was worried that NordLB may need a further capital injection after the German bank supervisory authority had discovered deficiencies in one of the bank's securitization deals.

Furthermore, NordLB's recapitalization is still undergoing a review by the European Commission, and without EU approval NordLB cannot receive the capital injection from its owners and the DSGV.