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Landesbanks: Friedel Neuber über alles

After eight years of campaigning, Germany's private-sector banks finally won a judgment in Brussels against WestLB's contentious capital-raising scheme, striking a blow at the financing privileges of state-owned banks. But WestLB chairman Friedel Neuber barely missed a beat: in less than a month he had demonstrated his political shareholders' loyalty by arranging yet another capital increase. Cowed by an angry government, the private banks dare not take the challenge to its logical conclusion. They fear losing more than they would gain, says Laura Covill.

rearguard action against the European Commission

The party was modest enough, a few glasses of German sparkling wine gulped down in a sixth-floor office on a sticky Thursday afternoon in Berlin. There weren't even any nuts to nibble. But three weeks later, Commerzbank chairman Martin Kohlhaussen was denying it ever took place. The head of the private-sector German Banking Association (BdB) knows there is nothing to celebrate.

It was lunchtime on July 8 1999 when the European Commission delivered its damning verdict on WestLB's 1991 scheme to increase core capital by incorporating a state-owned housing corporation, and paying interest of just 1.1% a year. Opponents crowed that the order from Brussels to repay Dm1.6 billion ($884 million) in outstanding interest, plus a further Dm589 million every year, marked the beginning of the end for the Landesbanken as state-guaranteed and state-owned institutions.

"At the heart of this dispute is [the principle] that banking business should be done on a level playing field," said Kohlhaussen. "This decision has removed a huge competitive disadvantage which goes back many years and reveals the enormous competitive boost WestLB has enjoyed over the past few years," a BdB statement added.


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