BayernLB

BayernLB, formally Bayerische Landesbank, is a publicly regulated German Landesbank headquartered in Munich. It is one of Germany’s six Landesbanken and serves as a major financing institution for the Free State of Bavaria, Bavarian municipalities and districts, the regional savings-bank sector, medium-sized companies and larger corporate clients. The group also offers selected services to private customers, largely through subsidiaries and affiliated businesses. The modern bank was created by Bavarian legislation on 27 June 1972 through the merger of Bayerische Gemeindebank and Bayerische Landesbodenkreditanstalt. Its institutional history is older: Bayerische Gemeindebank dates from 1914, while Bayerische Landesbodenkreditanstalt was established in 1884 and remains associated with state housing policy. Karl Theodor Jacob became the first president of the merged institution. As with other Landesbanken, BayernLB combines commercial banking with a public-sector mandate, providing financial and credit advice to Bavaria and its local authorities. BayernLB expanded beyond its regional base during the 1990s, developing activities in East Asia, Eastern Europe and the United States. Its most consequential international expansion was the purchase in 2007 of a 50.01% stake in Hypo Alpe-Adria-Bank International, an Austrian institution with operations across Austria and the Balkans. The acquisition later became the subject of criminal proceedings, civil disputes and intense political criticism after the bank was accused of paying too much for the stake. The global financial crisis exposed substantial risks in BayernLB’s holdings of US subprime and other structured mortgage securities. Disclosures in 2008 indicated that more than €24 billion had been invested in securities regarded as vulnerable, producing very large write-downs and losses. Chief executive Werner Schmidt resigned in March 2008 after a major write-down, while the bank’s difficulties became a significant issue in Bavarian politics. Later in 2008, BayernLB became the first German financial institution to receive support from the federal rescue framework. Bavaria provided €10 billion in capital and €4.8 billion in guarantees for a portfolio of troubled securities. The bank subsequently undertook restructuring, asset reduction and balance-sheet strengthening. It returned to profitability in 2010 and held preliminary merger discussions with WestLB, although those talks ended without an agreement. BayernLB repaid substantial amounts to Bavaria during the following years and completed repayment of the state-aid amount ahead of the European Union deadline in 2017, having returned almost €5.5 billion in total state support-related funds. The bank also participated in Germany’s Landesbanken protection arrangements, including a contribution to the 2019 rescue of NordLB. BayernLB’s business today is centered on corporate and institutional banking, public-sector finance, real-estate and housing finance, capital-markets services, asset management and support for German companies engaged in international trade. Its group structure has included Bayerische Landesbodenkreditanstalt and Deutsche Kreditbank, or DKB, a Berlin-based direct bank. Through its commercial activities, BayernLB provides loans, securities services, asset management, bond issuance, securitization and refinancing products. It has been classified as a significant institution under European Banking Supervision since the system began operating in late 2014 and is therefore directly supervised by the European Central Bank, alongside German supervisory authorities.

BayernLB’s institutional ancestry includes Bayerische Landesbodenkreditanstalt, founded in 1884 for housing and property finance, and Bayerische Gemeindebank, founded in 1914 to serve Bavarian municipalities and the savings-bank sector. The two organizations were merged by Bavarian law on 27 June 1972 to create Bayerische Landesbank. The resulting institution combined public-sector finance with the broader functions of a universal bank. Karl Theodor Jacob was its first president. During the 1990s, BayernLB expanded internationally, establishing or acquiring positions in East Asia, Eastern Europe and the United States. This expansion culminated in 2007, when the bank acquired a 50.01% stake in Hypo Alpe-Adria-Bank International for approximately €1.625 billion. The Austrian bank gave BayernLB a presence in Austria and the Balkans, but its purchase later became one of the most controversial episodes in the bank’s history. Critics argued that BayernLB had overpaid, and legal proceedings eventually examined both the acquisition and alleged corrupt payments connected with it. The bank was severely affected by the global mortgage crisis. It had built a large portfolio of US subprime and other structured mortgage securities. In 2008, public disclosures indicated that more than €24 billion of investments were exposed to securities considered critical. BayernLB reported losses and impairments running into billions of euros, while the collapse of Lehman Brothers intensified pressure on its balance sheet. Werner Schmidt resigned as chief executive in March 2008 after a major write-down. The crisis also became a political issue in Bavaria because Erwin Huber, then Bavarian finance minister and acting chair of the bank’s administrative council, faced criticism over the handling and disclosure of the losses. At the end of 2008, BayernLB received emergency support. Bavaria injected €10 billion in capital and provided €4.8 billion of guarantees for a portfolio of complex securities that had deteriorated. The rescue made BayernLB the first German financial institution to use the federal government’s large-scale crisis support framework. The bank subsequently reduced risk, restructured operations and worked through European Union state-aid requirements. Discussions about a merger with WestLB took place in 2010 but were discontinued. BayernLB returned to profitability in 2010. It then began repaying public support and related amounts to Bavaria, including substantial payments in 2014 and 2016. In June 2017, it repaid the final outstanding state-aid amount ahead of the deadline established by the European Union. The total returned to the Free State was reported at almost €5.5 billion. The bank continued to operate within the German Landesbanken protection system and contributed to the 2019 rescue of NordLB. In parallel with its recovery, BayernLB developed partnerships intended to support German companies abroad. In 2016, it entered a cooperation with Standard Chartered to help finance Asian activities of German export-oriented small and medium-sized enterprises. The group retained a broad business model spanning corporate and institutional banking, public-sector finance, commercial real estate, housing finance, capital markets, asset management and retail banking through Deutsche Kreditbank. Bayerische Landesbodenkreditanstalt continued its role in public housing policy. Since the introduction of European Banking Supervision in late 2014, BayernLB has been classified as a significant institution and is directly supervised by the European Central Bank, in cooperation with German authorities. Its ownership remains closely connected to Bavaria’s public banking system: the Free State holds 75% indirectly through BayernLB Holding AG, while Sparkassenverband Bayern holds the remaining 25%. The bank has also faced continuing legal and reputational issues. A former chief risk officer was arrested in 2011 over an alleged corrupt payment related to the sale of a Formula One stake. BayernLB pursued Deutsche Bank in a US mortgage-securities case before settling in 2014. Proceedings concerning Hypo Alpe-Adria included the conviction of former chief executive Werner Schmidt in 2014. In 2023, the bank accepted the restitution of Kandinsky’s Colorful Life after an advisory panel concluded that the work had been looted from a Jewish family during the Nazi era.

1. 2023Kandinsky painting restitution announced

   BayernLB announces the return of Colorful Life to the heirs of the painting’s former Jewish owners.

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2. 2017State-aid repayment completed early

   The bank repays the final outstanding state-aid amount ahead of the European Union deadline.

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3. 2014Directly supervised as a significant institution

   BayernLB becomes subject to direct European Central Bank supervision under European Banking Supervision.

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4. 2010Return to profitability

   BayernLB reports a strong pre-tax profit after restructuring and balance-sheet repair.

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5. 2008Mortgage-crisis losses lead to state rescue

   Large losses on US mortgage-related securities result in leadership changes, Bavarian capital support and federal guarantees.

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6. 2007Stake in Hypo Alpe-Adria-Bank acquired

   BayernLB purchases a 50.01% interest in the Austrian bank, expanding into Austria and the Balkans.

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7. 1990International expansion accelerates

   BayernLB develops activities in East Asia, Eastern Europe and the United States.

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8. 1972Bayerische Landesbank is created

   Bavarian legislation merges Bayerische Gemeindebank and Bayerische Landesbodenkreditanstalt into the modern Landesbank.

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9. 1914Bayerische Gemeindebank is established

   A predecessor focused on Bavarian municipalities and public-sector banking begins operations.

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10. 1884Bayerische Landesbodenkreditanstalt is founded

    The institution that later became part of the BayernLB group is established to support housing and property finance in Bavaria.

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A state-backed universal bank combining a Bavarian public-sector mandate with commercial, corporate, capital-markets and international financing activities.

• Corporate and institutional bankingCommercial banking

  BayernLB provides lending, treasury, capital-markets and related advisory services to industrial companies, medium-sized businesses and institutional clients. The offering is oriented toward German corporate customers, including companies with international operations, and is supplemented by structured financing and securities services.

• Public-sector financePublic banking1972

  A core part of BayernLB’s public mandate is financing and advising the Free State of Bavaria, municipalities and districts. Services include credit facilities, financial planning and capital-markets support for public bodies and related institutions.

• Commercial real-estate financeReal-estate banking

  The group finances commercial property and related real-estate projects, serving developers, investors and institutional customers. Its wider property activities connect with Bavaria’s public housing and development-finance tradition.

• Housing and development financeDevelopment banking1884

  Through Bayerische Landesbodenkreditanstalt, the group participates in Bavaria’s housing-policy framework. Activities are associated with public housing finance, development lending and support for regional housing objectives.

• Capital-markets and refinancing servicesInvestment banking

  BayernLB supports clients through bond issuance, securitization, securities trading, asset management and related refinancing instruments. The bank funds its own activities through a range of commercial debt instruments.

• Deutsche KreditbankRetail and direct banking

  Deutsche Kreditbank, headquartered in Berlin, provides the group’s principal direct and retail-banking presence. Its inclusion gives BayernLB exposure to private customers in addition to its public-sector and corporate franchises.

• 2023Approve restitution of Colorful LifeOther

  An advisory panel recommended that a painting in BayernLB’s collection be returned to the heirs of the Jewish family that originally owned it.

  What changed. BayernLB decided to return Wassily Kandinsky’s 1907 tempera painting Colorful Life.

  Aftermath. The decision addressed a Nazi-looted-art claim and formed part of the bank’s provenance and restitution response.

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• 2017Complete early repayment of state aidStrategy

  Following recovery in profitability and capital strength, BayernLB sought to conclude its European Union state-aid process ahead of the prescribed timetable.

  What changed. The bank repaid the final outstanding state-aid amount to Bavaria.

  Aftermath. The European Union state-aid proceedings were concluded early, with almost €5.5 billion returned to the Free State of Bavaria in total.

  Total repayments to Bavaria. Almost €5.5 billion (By June 2017)

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• 2016Partner with Standard Chartered for Asian export financeStrategy

  BayernLB aimed to support German export-oriented small and medium-sized companies operating in Asian markets.

  What changed. The bank entered a partnership under which Standard Chartered would help finance Asian operations of eligible German companies.

  Aftermath. The partnership extended BayernLB’s international corporate-finance reach without requiring a full-scale retail or branch expansion in Asia.

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• 2010Explore merger with WestLBM&A

  German Landesbanken faced pressure to consolidate after the financial crisis.

  What changed. BayernLB held preliminary merger discussions with WestLB.

  Aftermath. The talks ended after several weeks without a transaction.

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• 2008Accept state-backed recapitalization and guaranteesStrategy

  Severe losses on mortgage-related securities weakened the bank during the global financial crisis.

  What changed. Bavaria provided capital and guarantees under the German financial rescue framework.

  Aftermath. BayernLB restructured, reduced risk and later repaid the state-aid-related amounts ahead of the European Union deadline.

  Capital injection and guarantees. €10 billion capital injection and €4.8 billion in guarantees (2008)

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• 2007Acquire majority stake in Hypo Alpe-Adria-BankM&A

  BayernLB sought to expand its international footprint into Austria and the Balkans through the purchase of a controlling stake in Hypo Alpe-Adria-Bank International.

  What changed. The bank acquired 50.01% of Hypo Alpe-Adria-Bank International.

  Aftermath. The transaction later generated criminal proceedings and allegations that BayernLB had overpaid substantially.

  Purchase price. €1.625 billion (2007)

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• 2023Restitution of Kandinsky’s Colorful LifeControversy

  A German advisory panel recommended restitution of Wassily Kandinsky’s 1907 painting Colorful Life to the descendants of the Jewish family from which it was taken. BayernLB announced that it would return the work.

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• 2014Hypo Alpe-Adria acquisition proceedingsControversy

  Legal proceedings examined whether BayernLB overpaid for its 2007 acquisition of a majority stake in Hypo Alpe-Adria and whether improper payments were made in connection with the transaction. Former chief executive Werner Schmidt was convicted in 2014 in relation to the bribery allegations.

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• 2011Alleged corrupt payment in Formula One transactionControversy

  The bank’s former chief risk officer was arrested in connection with an alleged payment of approximately $50 million relating to BayernLB’s 2005 sale of a stake in Formula One motor racing.

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• 2008Mortgage-crisis losses and public rescueControversy

  BayernLB suffered multibillion-euro losses after investing heavily in US subprime and other structured mortgage securities. The episode led to executive turnover, political controversy and a capital injection and guarantee package from Bavaria.

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• 2019BayernLB contributes to the NordLB rescue arrangement

  As a participant in the protection scheme for Germany’s Landesbanken, BayernLB contributed to the rescue package for NordLB.

  RegulationOther
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• 2017BayernLB completes repayment of European state aid

  BayernLB repaid the final outstanding state-aid amount ahead of schedule, bringing total repayments to Bavaria to almost €5.5 billion.

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• 2016BayernLB joins financing partnership with Standard Chartered

  Standard Chartered agreed to support financing for Asian operations of German export-oriented small and medium-sized businesses through a BayernLB partnership.

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• 2010BayernLB returns to profitability

  BayernLB became the first German bailed-out Landesbank to return to profitability, reporting approximately €885 million in pre-tax profit.

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• 2010BayernLB and WestLB end merger discussions

  Preliminary discussions about a possible combination of the two Landesbanken ended without a merger.

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• 2009European Commission approves BayernLB restructuring plan

  European state-aid authorities approved a restructuring framework requiring BayernLB to shrink its balance sheet, exit or sell non-core operations and focus more narrowly on its core regional and corporate-banking functions.

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• 2008BayernLB receives German financial rescue support

  The bank received capital from Bavaria and guarantees for troubled securities after losses linked to the global financial crisis.

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• 2008BayernLB receives extensive state support during the financial crisis

  The financial crisis caused major losses in BayernLB’s securities and international banking portfolios. The Free State of Bavaria provided substantial support, including capital and guarantees, to stabilize the bank.

  OtherRegulation
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1. Bayerische Landesbank
2. BayernLB official website
3. BayernLB’s Hypo Alpe-Adria investment triggers legal and political scrutiny
4. European Commission approves BayernLB restructuring plan