Berlin to abandon Bankgesellschaft sale

The City of Berlin senate is today expected to reject the private equity backed offer from Christopher Flowers and Texas Pacific Group for the loss-making German bank.

The protracted negotiations surrounding the sale of Bankgesellschaft Berlin [BGB], the troubled German bank being sold by the City of Berlin, looks set to come to an end today with the City’s rejection of the private equity-backed offer for its 81 per cent majority stake.

 

After more than 18 months of negotiations, the City of Berlin is set to reject an offer submitted last month by US private equity firm Texas Pacific Group and US investor Christopher Flowers. Berlin had originally sought to recoup around E1.8bn for the business, but last month Christopher Flowers indicated that the final offer was likely to be below that level.

 

City of Berlin finance minister Thilo Sarrazin will today give his recommendations which then require approval by the Berlin senate. Reuters reports that the senators have opted to delay the sale, believing they will get an improved price for the stake in the bank when the economy picks up.

 

BGB, Germany's tenth-largest banking group and the only German institution to combine state and private-investor ownership, avoided becoming the latest in a string of major German insolvencies last year when Berlin's senate voted to cover all the bank's potential liabilities for the next 30 years, which could run to as much as E21bn.

 

That decision cleared the way for a sale of the City of Berlin's stake in the bank, which rose to 81 per cent after it fully underwrote a E1.7bn capital increase for the group to make up for the losses it had incurred in its real estate business.

 

Lone Star, the private equity firm that has acquired a number of financial institution assets including Korean banking group Korea First Bank, was a participant in earlier rounds of the auction in May and December last year. The Dallas-based firm has said that it is still interested in bidding for the business and has said that it would not seek additional guarantees from the city of Berlin.

 

Schroder Salomon Smith Barney has been running the sale process.