[A-List] Germany: Kirch crisis

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Following the earlier point made regarding the management of Soviet era
debt and the precarious position of German banks, here's confirmation of
the situation facing German banks...


Failure adds to pressure on loans
By Tony Major in Frankfurt
Financial Times: April 9 2002

The crisis at Kirch Gruppe has come at a bad time for Germany's ailing
banks.

Under pressure from a rising tide of bad loans and depressed revenues,
Germany's biggest banks could face still more difficulties now that
Kirch Media, Kirch's main operating unit, has declared itself insolvent.

Analysts estimate the banks are exposed to more than E6bn ($5.2bn) in
debt and several billions more in contingent liabilities, much of which
may end up burdening this year's earnings.

"Kirch alone isn't going to bankrupt anybody. The banks can absorb the
potential losses," said a London-based analyst. "However, it will curb
their financial flexibility and leave some of them a lot weaker."

Germany's public-sector and co-operative-sector banks appear most at
risk from Kirch's troubles. Moody's Investor Services, the international
ratings agency, last week cut the financial strength rating of DZ Bank,
the central bank for Germany's co-operative banks, from C-minus to
D-plus because of its exposure to Kirch and its "modest financial
fundamentals".

Moody's warned it might also lower the financial strength rating of
Bayerische Landesbank, Germany's second-largest public bank, because of
its "particularly large exposure" to Kirch, estimated at E1.9bn.

The downgrade is a setback for DZ Bank, Germany's sixth-biggest banking
group, which was created last year out of the merger of DG Bank and GZ
Bank. It is heavily exposed to small and medium-sized companies that
have been hit hardest in Germany's downturn, and it has struggled to
cover big increases in loan loss provisions.

It released hidden reserves last year to shore itself up, but Moody's
said it would now review the bank's ability to cover future losses from
its own resources. Its exposure to Kirch is estimated at about E300m.

BayernLB, which has also been affected by the recent collapses of
construction group Philipp Holzmann and regional jet maker Fairchild
Dornier, stands to be the biggest loser, analysts say.

Moody's cut BayernLB's financial strength rating to C in February,
citing rises in loan loss provisions, increases in costs and the likely
impact of a Kirch collapse. It is now reviewing that rating, focusing on
the effect of Kirch's crisis on the bank's capitalisation.

Germany's blue-chip private banks are also bracing themselves for more
loan provisions. Analysts expect provisions for bad loans to rise
another 10 to 20 per cent this year as astagnating economy drives more
small and medium-sized companies into insolvency.

"Kirch is not going to help matters. It is just the latest in astring of
high-profile failures. Insolvencies are already set to rise to above
last year's record levels in 2002," said an analyst.

"Taken all together . . . it will be a significant burden on the banks'
financial strength and further erode their already weak profitability,"
he added.

Of the big four, Deutsche Bank seems best placed. It has E715m in
exposure to Kirch Beteiligung, the group's investment arm, which is
separate from Kirch Media. Deutsche Bank can fall back on Kirch's 40 per
cent stake in publisher Axel Springer, now worth E880m.

Dresdner Bank has a E460m loan to Taurus Holding, Kirch's holding
company. The loan is secured against Kirch Media's 25 per cent stake in
Telecinco, the Spanish broadcaster, and was due to be repaid this week.
But Dresdner said on Monday it had agreed to postpone repayment.

HVB Group and Commerzbank have their loans of E460m and E350m backed by
film and broadcasting rights, the value of which remains in question.

Full article at:
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3HLY8PSZC&live=true&useoverridetemplate=ZZZ3XDHE90C&tagid=ZZZA31PK20C

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx