There have been many prominent exits from the banking sector during 2012, but one significant departure attracted very little attention. On June 30, just in time to meet a EU-imposed deadline of July 1, WestLB was broken up. For many years before the 2008 crisis, WestLB had been the accident-prone whipping boy for those who questioned the business model of Germany’s regional wholesale banks, the landesbanken.
In its final decade of existence, WestLB generated annual profits just four times, with an average return on capital of -10.9%. Significantly, its final decade coincided with the period after the German government agreed with the European Commission in 2001 to end government guarantees on landesbanken liabilities, increasing their wholesale funding costs.
