Bank Reorganization

Victim of Financial Crisis, BayernLB Regroups Under New CEO

ecclestone2 dpa
The new head of BayernLB is going after Bernie Ecclestone, saying the bank was cheated in sales of Formula One shares.
  • Why it matters

    Why it matters

    BayernLB’s new chief executive wants to settle lingering legal claims and turn the bank around.

  • Facts

    Facts

    • Johannes Riegler has been chief executive of Germany’s second-largest state-owned bank since April.
    • BayernLB wants to settle a claim against Formula One president Bernie Ecclestone or sue him.
    • The bank is selling a subsidiary, MKB, to the Hungarian government for €55 million.
  • Audio

    Audio

  • Pdf

The new head of BayernLB, Germany’s second-largest state-owned bank, is cleaning house. Johannes-Jörg Riegler, who was named chief executive in April, is ending a costly foray into Hungary, cutting costs and seeking closure on a legal case involving a former client, Formula One boss Bernie Ecclestone.

On Thursday, when asked about negotiations with the British business magnate, who had been accused of bribing bank officials to secure a lucrative German sporting contract, Mr. Riegler said the bank would press for a legal resolution.

“It’s still unclear whether we will sue or (whether) there will be a settlement,” Mr. Riegler said.

Mr. Ecclestone reached a settlement with prosecutors in a Munich court at the beginning of this month, agreeing to pay €75 million ($100 million) to end the case without admitting guilt. Mr. Ecclestone had offered BayernLB €25 million to drop its claims.

But Mr. Riegler said he wants more.

“The package wasn’t right,” the 50-year-old chief executive has recently said. The bank believes it was cheated during the sale of its Formula One shares in 2006. Mr. Riegler is also combative on other issues. The bank’s attorneys are pursing litigation at the European Court of Justice and the Austrian Constitutional Court, said Mr. Riegler, who was the former chief risk officer at another state-owned German bank, NordLB.

The bank alleges it was cheated by Mr. Ecclestone during the sale of its Formula One shares in 2006.

Austria has adopted a new law that would force BayernLB to partially pay for the costs of reorganizing a former subsidiary, Hypo Alpe Adria, a troubled mortgage lender that nearly collapsed during the financial crisis. The Austrian bank is not repaying outstanding loans, and BayernLB and Hypo Alpe Adria are suing each other.

On another front, Mr. Riegler is making progress.

BayernLB has recently found a buyer for its Hungarian subsidiary MKB, which has generated billions in costs for BayernLB. The unit is being sold to the Hungarian government for €55 million. The sale is expected to be completed in September.

MKB generated €311 million in charges for BayernLB in the first half of the year.

As a result, the bank is expected to lose money on the year, even though its business is profitable. For Mr. Riegler, 2014 is a year of transition. BayernLB concluded the first half with a net gain of €153 million, a 74-percent decline over the previous year, when proceeds from the sale of real estate subsidiary GBW had filled its coffers.

BayernLB is feeling the effects of low interest rates in the banking business, and it also faces strong competitive pressure. On the other hand, the bank benefits from falling costs. Its current cost-cutting program has reduced administrative expenses by more than 7 percent, despite the costs of the European Central Bank stress test, which are likely to run into the double-digit millions.

The Bavarian bank is unfazed by the stress test itself. With a common equity tier ratio of 14.4 percent, BayernLB comes in well above the regulators’ requirements.

Translated by Christopher Sultan

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!