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• Examination will look at creating a combined universal bank focused on corporate financing
• Merged bank would be firmly anchored in the savings bank associations
• Results expected by the end of the year

With the approval of the BayernLB Board of Administration and the WestLB Supervisory Board, the Boards of Management of BayernLB and WestLB will explore over the next few months the possibility of a merger between the two banks. The process will focus on a number of important business issues including in particular the strategic positioning of the combined bank, funding, and the risks and opportunities of merging the two Landesbanks. Given the number of complex issues, it remains open if the talks will ultimately be successful.
The goal is to have a joint understanding by the end of the year on whether a merger makes economic sense and to report the findings to the relevant bodies for a decision.
Both banks work on the assumption that the savings banks, the German government, SoFFin and the European Commission will constructively assist in examining and resolving open issues.

Gerd Haeusler, BayernLB CEO commented, “The German economy is more industry based, export oriented, and marked by middle-market companies than most other countries. It needs access to a multiregional and highly capitalised “house bank” that can serve its financing needs. The decision to hold preliminary talks with WestLB is possible due to the restructuring programme BayernLB initiated at an early stage focussing on customers and achieving a significantly better risk profile. As a result of our early start, the restructuring is now well advanced. Owing to the recapitalisation by the Free State of Bavaria, we now have a strong capital base and are well equipped for Basel III. In the coming months we will explore creating a universal bank with an emphasis on corporate finance that will also be a major service partner for the savings banks. Business issues will be at the forefront of the exercise”.

Dietrich Voigtländer, CEO of WestLB said, “After the success of our restructuring, WestLB, freed from old burdens and focused on business with customers, is ready to begin a new chapter. We have always stressed that consolidation is our highest priority and that we intend to be a leader in the process. Now is the right time to start the consolidation process. A merger of WestLB and BayernLB could result in a strong, competitive corporate financing bank based in two of Germany’s most important economic centres – North Rhine-Westphalia and Bavaria – and focused on Germany and selected international core markets. At the same time, the merged bank would play a major role as an efficient partner of the savings bank associations. Parallel to the sales process that will begin with the official announcement on 30 September 2010, over the next few months we will examine with an open mind but also great seriousness the question of if and how this goal could be achieved”.

BayernLB
The new BayernLB is a customer-oriented, high-performance regional bank that focuses on Bavaria, Germany and selected international markets. Group-wide, BayernLB serves over two million customers primarily in its main customer business areas of Corporates & Markets; Real Estate, Public Sector & Savings Banks; and Mittelstand & Retail Customers. In the Mittelstand sector, BayernLB and its DKB subisidary are already major credit providers with more than EUR 45 billion in loans granted in Germany.

The BayernLB Group posted pre-tax earnings of EUR 554 million in the first half of 2010, buoyed by stable earnings in its customer business. Over 80 percent of earnings came from business activities designated as core business areas under the Bank’s new strategy introduced at the beginning of 2009. The positive results in the first half of 2010 underline the viability of its business model as a principal bank for its customers.
BayernLB’s Hercules restructuring programme is well advanced and is expected to be largely completed by the end of 2010. Non-strategic assets and discontinued portfolios have been bundled into a Restructuring Unit and risks in the structured financial securities portfolio have been hedged by a guarantee agreement with the Free State of Bavaria. The cost structure and headcount have both been significantly reduced by these processes and good progress has been made in winding down non-core activities. At the same time, major steps have been taken as part of the new strategy to strengthen customer business, particular with Mittelstand, retail and large corporate customers. In addition, collaboration with the savings banks has been intensified.

In executing its new strategy, BayernLB is aided by its solid capitalisation which includes a comparitively small share of silent participations. Core capital at BayernLB amounted to EUR 13.5 billion as at 30 June 2010 giving it a core capital ratio of 10.4 percent on this date. The Bank’s solid capital base was clearly confirmed by the recent stress test conducted under the aegis of the CEBS. Even under the strictest scenario, whereby the European and German sovereign risks in its trading book were included, the core capital rato still amounted to 8.8 percent. An additional internal simulation conducted by BayernLB examined the impact of the exposures to these countries booked in its banking book in a stress scenario. In this case, the core capital ratio amounted to 8.4 percent.

WestLB
WestLB has instituted far-ranging changes in response to the financial crisis. After the transfer on 30 April 2010 (retroactive to 1 January 2010) of non-essential strategic activities amounting to EUR 77 billion to the workout entity known as Erste Abwicklungsanstalt (EAA), the business model is now focused on four customer franchises in attractive markets: Verbund Clients, Corporate Clients, Specialised Finance Clients, and Institutional Clients. WestLB is now benefiting from its sharply improved risk profile, up-to-date IT systems and highly proficient staff. As part of its streamlining and downsizing process, the network of German and international branch offices was systematically pared back and holdings reduced.
WestLB has emerged as a profitable bank firmly anchored in the market and focused on customers, with good capitalisation and a stable funding base. Its customers know and appreciate WestLB as a long-term partner for sophisticated financial solutions. WestLB possesses attractive product platforms with a strong track record and leading positions in financial solutions, capital markets business and transaction banking.
WestLB is firmly rooted in the state of North Rhine-Westphalia. It performs the role of central bank for the savings bank sector in the German states of North Rhine Westphalia and Brandenburg, while also operating in attractive international markets.
Pre-tax earnings for the WestLB Group amounted to EUR 114 million in the first half of 2010. Earnings before taxes at the core WestLB bank were EUR 304 million for the first six months of the year.
Due, among other things, to the transfer to the workout entity, the core capital ratio amounted to 10.1 percent and the overall ratio to 14.6 percent at the end of June 2010.
The stress tests of European banks conducted in July of this year confirmed that WestLB’s capital base is good. The bank’s improved risk profile is also reflected in the sharp decrease in risk assets, which amounted to EUR 53.4 billion at the end of June, down from EUR 83.0 billion at the end of December 2009. Total assets amounted to EUR 251.2 billion at the end of H1 2010 (31 December 2009: EUR 242.3 billion). As at 30 June 2010, WestLB employed 5,032 staff members worldwide, of which 4,780 were full-time.