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German states inject €2.8B fresh capital in state-owned NordLB

Norddeutsche Landesbank Girozentrale received €2.8 billion from its state owners and savings banks Dec. 23 as part of a recapitalization package, the German lender said in a statement.

Of the €2.8 billion, the state of Lower Saxony provided €1.5 billion — more than half of the capital injection — and will remain the bank's majority owner after the transaction. The state of Saxony-Anhalt contributed €198 million to the package while the financial group of the German savings banks sector association provided the remaining €1.1 billion.

In addition, Lower Saxony will indirectly boost NordLB's capital by another €800 million by taking over existing guarantees on two of the bank's credit portfolios — bringing the total package to €3.6 billion.

The capital injection will lift NordLB's common equity Tier 1 ratio to at least 14% from 6.53% at end-September and bring it above the regulatory minimum requirement of 10.57%.

The measures will also result in a change in the owners' holdings in NordLB with Lower Saxony's stake falling to 52.98% from 59.13%, and that of Saxony-Anhalt increasing to 6.98% from 5.57%. The financial group of the savings banks sector association will hold a 26.7% stake via two trusts. The regional savings banks association in Lower Saxony will hold a 9.97% stake, up from 5.28% previously. The savings banks association of the states of Mecklenburg-Western Pomerania will hold 1.38% of NordLB, down from 3.66% previously. The savings banks association of Saxony-Anhalt, which previously was not a NordLB shareholder, will now hold 1.99% of the bank.

Following the recapitalization, NordLB will complete its transformation program, aimed at changing the group's portfolio makeup, as it moves away from shipping and focuses on sectors like commercial real estate, corporate lending and energy.

For the first nine months of 2019, shipping constituted 8.6% of operating income. By 2021, NordLB wants to reduce its shipping NPL stock to zero from an expected €2.5 billion as of 2019-end. The total shipping loan portfolio should be reduced to about €600 million from an estimated €4 billion as of year-end.