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ECONOMY

LBBW piles up loss of €2 billion

Germany's biggest stated-owned regional bank Landesbank Baden-Württemberg (LBBW) said Friday it was raising billions of euros in fresh capital and considering tapping a government rescue package after being hit by the financial crisis.

Published: 21 November 2008 15:27 CET
LBBW piles up loss of €2 billion
Photo: DPA

Stuttgart-based LBBW is bracing itself for an estimated loss of more than €2 billion for the coming financial year, shareholders told news agency DPA on Friday.

The bank has run up an €800 million debt in October alone, after contracting a loss of €900 million within the first nine months of the calendar year.

LBBW shareholders now hope to raise the equity ratio, which reflects the proportion between the bank’s own funds and issued credits, from 7.3 percent to 9 percent with a capital injection of €5 billion. Main stakeholders are the federal state of Baden-Württemberg and the German Savings Bank Association, each holding 35.6 per cent of the company.

LBBW also said it would consider tapping Chancellor Angela Merkel’s

€480-billion banking rescue package to secure between €10 and €15 billion

in loan guarantees.

“This is primarily being done in order to be able to ensure, in light of the current macroeconomic situation, a sustained supply of credit to the bank’s core markets in the future,” a statement said.

Germany’s statebanks have been major casualties of the financial crisis

after the loss of state-backed guarantees in 2005 prompted them to invest in

higher-risk financial instruments, many of which have since turned sour.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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