After criticism from Europe’s banking supervisors, the state of Hesse is restructuring its stake in the Landesbank Hessen-Thüringen (Helaba) and is taking on new debt. Finance Minister Alexander Lorz (CDU) said on Monday in Wiesbaden that two billion euros as a cash deposit should be used to replace the silent participations, i.e. capital contributions without voting rights, which the supervisory authorities have questioned. The country is putting 1.5 billion euros into Helaba as a cash deposit, and an AT1 bond from the bank is being purchased for another 500 million euros. These are securities that can be used in the event of a crisis to strengthen a bank’s equity base.
This investment in Helaba’s share capital will increase Hesse’s share in Germany’s third-largest state bank from 8.1 percent to 30.08 percent. The main owners of Helaba remain the savings banks, whose share of the share capital will be reduced from around 88 percent to a good 66.4 percent as a result of the restructuring. Thuringia’s participation falls from 4.05 percent to 3.50 percent. The black-red state government wants to finance the matter with new loans in the supplementary budget for 2024, which is to be decided before the summer holidays. The changes are due to be implemented in practice in August.
BayernLB has a similar problem
The Ministry of Finance explained that the planned new debt would be permitted for the “acquisition of a valuable shareholding” within the framework of the debt brake. Dividends and interest should cover the country’s refinancing costs, said Lorz. “Helaba will be a little stronger than it already is. Not only will its customers benefit from this, but also the state of Hesse.”
BayernLB has a similar problem to solve. Its equity also consists in part of a silent contribution from the Free State of Bavaria worth 1.7 billion euros. This must now be converted into a real capital reserve so that it continues to be considered common equity core capital. This could increase the state’s share to 80 of 75 percent; the Bavarian savings banks only held 20 percent. BayernLB CEO Stephan Winkelmeier recently said the talks had progressed well. There will be no additional flows of funds from the Free State to the bank, said Winkelmeier – unlike in Hesse.