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Report: Lower Saxony may inject up to €2.5B in state-owned bank NordLB

The German state of Lower Saxony could inject up to €2.5 billion into public lender Norddeutsche Landesbank Girozentrale, and is hoping to get further funding of up to €1 billion from external investors, including private equity funds and banks, Süddeutsche Zeitung reported Oct. 9.

Lower Saxony, which holds a 59.13% stake in NordLB, has estimated the bank needs to raise capital of around €3.5 billion and is ready to provide the larger part of that amount, Süddeutsche Zeitung said, citing documents submitted to potential bidders.

The state is willing to sell up to a third in NordLB to private investors but wants to retain a majority holding. Lower Saxony's finance minister, Reinhold Hilbers, has stressed the bank's importance for the state's economy. Employing some 6,000 people in Lower Saxony, NordLB is also an important lender to local small and medium-sized businesses.

However, to retain control after a partial sale, Lower Saxony would need to provide additional capital.

A capital injection may be hard to pass through the local parliament, Süddeutsche Zeitung said. The opposition Green and Free Democratic Parties are both skeptical about the need to spend taxpayer money to support the bank, the newspaper said.

The deadline for indicative bids for a stake in the northern German lender expired Oct. 8. Apart from private investors, there is also another landesbank in the bidding race, according to the newspaper. Bidders have the option to either buy equity directly or invest in a convertible bond, it said.

In December 2017, NordLB said it would need fresh funds to help it boost its common Tier 1 equity ratio to at least 13%. The bank and its owners have explored a number of options for raising the necessary capital, including a stake sale to private investors.

After booking a more than fourfold increase in loan loss provisions, mostly related to legacy shipping loans, NordLB reported a full-year 2016 loss of €1.96 billion. Since then, the bank has been struggling to recover profitability and balance its capital position. The bank reported an 82% year-over-year decline in consolidated profit to €54 million for the first half of 2018. The bank's fully loaded CET1 ratio was 12.3% as of June-end.