Risky assets

Germany's financial sector rescue fund, a government-guaranteed vehicle for soured assets, said on Monday that WestLB would drop some 85 billion euros ($124 billion) into the bad bank, known officially as an "unwinding institute."

Balance sheets in many countries, not just in Germany or Europe, have been weighed down by assets that have lost much of their value in the financial crisis.

Tackling that problem is viewed as the key to restoring confidence in the banking sector, while easing the conditions for borrowing for businesses and consumers.

In a first step, high risk assets worth some six billion euros will be extracted from WestLB's balance sheet. Other portfolios will follow by the end of April 2010.

Job losses loom

The creation of the first bank bank for restructuring WestLB was preceded by weeks of often acrimonious bickering in Germany about who should be shouldering the financial burden.

In late November, WestLB shareholders and the federal government finally agreed on the terms of a rescue package. The savings and loan institutes of North Rhine-Westphalia, Germany's most populous state and the home of WestLB, are providing guarantees worth one billion euros, while Berlin is providing up to four billion euros.

The plan, approved by the European Commission, calls for cutting WestLB's payroll of 5,400 employees by half by the end of 2011 and then selling a majority stake of the bank, so that it is no longer in government hands.

gb/dpa/AP/AFP/Reuters

Editor: Sonia Phalnikar