Germany approves bailout terms, sets salary cap

[October 20, 2008]  FRANKFURT, Germany (AP) -- The German Cabinet on Monday approved terms that banks will have to accept in order to benefit from its euro480 billion ($645 billion) bailout plan -- including a salary cap of euro500,000 ($670,200) for top bank managers.

Those managers would also be obliged to forgo bonuses and dividend payments as long as their banks were indebted to the government.

The federal bailout plan approved by parliament Friday includes up to euro400 billion ($538 billion) in lending guarantees for banks, plus as much as euro80 billion ($107 billion) to recapitalize banks and, if necessary, buy up risky assets.

Leaders of Germany's largest commercial banks said this weekend that they would not immediately seek money on those terms.

Josef Ackermann, the chief executive of Germany's biggest private bank, Deutsche Bank AG, has said his company does not need capital from the state.

Martin Blessing, the CEO of Germany's No. 2 bank, Commerzbank AG, was quoted as saying by the Bild on Saturday newspaper that his company would look at the package and see "whether it comes into question for us."

Yet the salary cap approved Monday has to be a major sticking point for some banks.

According to Deutsche Bank's 2007 annual report, Josef Ackermann's total compensation including salary, benefits and shares amounted to almost euro14 million (US$18.9 million) last year.

Commerzbank's annual report said its outgoing CEO Klaus-Peter Mueller received total compensation of euro3.2 million ($4.32 million) in 2007, not including shares and some other benefits. The company's new chief executive since May, Martin Blessing, received compensation of euro2 million ($2.7 million) in 2007, not including shares and some other benefits.

The seven German Landesbanks are currently reviewing whether to take up the government's bailout package offer.

A spokesman for HSH Nordbank said the bank was still looking at the package, while a spokesman for Landesbank Baden-Wuerttemberg told The Associated Press it was not interested in any bailout compensation.

"LBBW stands in the point of liquidity and capital, and in comparison to the sector, is in good shape" the bank's chief executive, Siegfried Jaschinski, said last week.

LBBW is Germany's largest state bank.

State bank BayernLB, however, said it wants to accept money from the package as soon as possible.

"It's about achieving a fast stabilization," said Erwin Huber, BayernLB's administrative board chief and the finance minister of the southern state of Bavaria said Monday on the ZDF-Morgenmagazin television program.

Huber didn't say how much the bank would seek to borrow, but said in order to meet the government's conditions for the money, the bank would have to be restructured, partially privatized or merged with another bank.

BayernLB and other public-sector wholesale banks -- which are owned by a combination of state governments and municipally backed local banks -- have faced hefty write-downs as a result of the subprime lending and credit crisis.

Last week, state banking officials confirmed that Bayern LB was discussing a possible merger with Landesbank Baden-Wuerttemberg, also in the country's economically strong south.

In the interview Monday, Huber said he was in favor of the conditions that government has imposed on banks.

"Performance has to be linked with responsibility," he said.

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On the Net:

http://www.bayernlb.de/

http://www.lbbw.de/

http://www.db.com/

http://www.commerzbank.com/

[Associated Press; By GEORGE FREY]

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