WestLB is to write off at least another €200m (£140m) against the TV rentals business BoxClever, following criticism by Germany's financial regulator of risk provisions at the bank's principle finance unit, which is run by the high-profile financier Robin Saunders.
The regulator, BaFin, which launched an investigation into WestLB's exposure to BoxClever in May, made it clear it wanted the bank to adopt a more prudent approach to the deal. It has advised WestLB to put aside enough money to cover its entire exposure to the company. That means WestLB will have to increase provisions from the €482m it put aside for the 2002 financial year to almost €700m when it announces half-year results on Wednesday.
A spokesperson for WestLB said: "Provisions are being reviewed and it is likely it will result in a higher provision. The figure is likely to be in line with what BaFin has recommended."
Johannes Ringel, who replaced WestLB's ousted CEO Jürgen Sengera last month, is keen to rebuild confidence with investors and BaFin by adopting a cautious approach to WestLB's liabilities. However, the bank believes it will not need all of the extra cash being put aside to cover losses at BoxClever. It is confident it can renegotiate the repayment of loans made to the company in 2000. If it is successful, the bank and other creditors would receive at least a proportion of the money they are owed by the company, formerly known as Radio Rentals.
BaFin has widened its inquiry into WestLB and last month criticised its procedures for assessing risk across its entire structured finance business, which includes principle finance. It is also investigating WestLB's practice of allowing senior managers to hold personal stakes in companies they were also lending the bank's money to.
Mr Ringel is conducting his own review of WestLB's portfolio. While he is optimistic that BoxClever can be restructured, he has also come to the conclusion that provisions should be increased. There is speculation that he will use the interim results to boost reserves against other liabilities, such as WestLB's exposure to the US aircraft leasing business Boullioun.
Mr Ringel's strategic review is expected to be concluded next month. He has already indicated that principle finance will no longer be part of the bank's future.
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