Navigating the financial labyrinth of Germany's Landesbanken

Tue Sep 17, 2013 1:14am EDT
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By Laura Noonan

HAMBURG (Reuters) - To the casual observer, the Landesbanken's results for the first half of this year might suggest Germany's publicly-owned regional banks are in rude financial health.

But the headline numbers belie a more complex reality.

Four of the five major Landesbanken boasted improvements in profits for the first half of 2013, sometimes quite dramatic, like the 400 percent increase in pre-tax profits at Hamburg and Kiel based shipping lender HSH Nordbank. <SEE FACTBOX>

As a group, their 'tier one capital ratios' - a measure of how much high quality capital they have to weather future losses - came in slightly ahead of Europe's thirty largest banks by market capitalisation.

Both measures are open to particular quirks in the Landesbanken world.

Take HSH - Christian van Beek, of ratings agency Fitch, points out that the bank can actually obtain compensation as some loans that were expected not to be repaid are sold off at a loss or a write down is agreed.

This is because, a provision for a bad loan comes off HSH's profit and loss account, but once the loss on certain loans is actually crystallised, HSH can claim against a 10 billion euros state-sponsored asset guarantee scheme.

"Net income/loss is currently not a good indicator for the bank's progress in establishing a viable business model," said van Beek, who instead focuses on the bank's new business generation.   Continued...