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NordLB gets closer to state-backed rescue as owners settle dividend dispute

Norddeutsche Landesbank Girozentrale has moved closer to receiving a €3.6 billion state-backed recapitalization it urgently needs after its owners have agreed on the future split of dividends.

The German lender's common equity Tier 1 ratio has rapidly deteriorated since late 2018 as NordLB stepped up efforts to deleverage its shipping loan book, most of which is nonperforming. The group's ratio stood at 6.75% as of March 31, down from 6.76% as of 2018-end and well below the regulatory minimum requirement of 10.6%.

The bank has received regulatory permission to maintain a lower-than-required ratio temporarily but would need to bring it back to 14% by the end of 2019, according to current plans. For that, NordLB needs to get the capital injection which will be provided by its current owners, the states of Lower Saxony and Saxony-Anhalt and savings banks in the two states, and other savings banks which will later become shareholders in the group.

The domestic approval of the package faced a few hurdles as some of the stakeholders in the process sought reassurance about the success of NordLB's planned restructuring. Most notably, the federal savings banks association DSGV was said to have expressed doubts about the bank's future capital needs.

The latest debate over dividend payments beyond 2021, when NordLB should have completed the revamp and returned to a stable capital position, was settled at a meeting of the bank's owners, Reuters and Handelsblatt reported Aug. 15. The dispute was sparked by a disagreement between current NordLB majority owner, Lower Saxony, and the savings banks about the timing and size of future dividend payouts as well as their split between the owners.

Lower Saxony is currently the majority owner of NordLB with a stake of 59.1%.

DSGV president Helmut Schleweis and Lower Saxony Finance Minister Reinhold Hilbers agreed that NordLB will pay out half of its profits from 2022 and keep the other half until it has collated a capital buffer of €550 million, insiders told Reuters and Handelsblatt.

The Finance Ministry of Lower Saxony has confirmed the agreement, saying this clears all outstanding issues of the state with the NordLB case, according to Reuters. The news agency said NordLB CEO Thomas Bürkle has welcomed the agreement and has said the bank is focused on clearing the remaining details around the recapitalization, working closely with EU authorities.

Given that the funding for NordLB is coming from the states, the bank needs an EU approval that the package is in line with state aid rules in the bloc.