BayernLB wants 6 bln euro fund for assets at risk

By Patricia Nann

MUNICH (Reuters) - BayernLB [BAYLB.UL] needs a 6 billion euro ($9.4 billion) guarantee fund to help it absorb mounting losses on risky investments, Germany's second-biggest landesbank said on Thursday.

BayernLB's 2007 net profit plunged more than 80 percent to 175 million euros, hit by the global credit crisis that it said had cost it 4.3 billion euros so far.

"The markets again fell massively at the start of 2008," new Chief Executive Michael Kemmer told a news conference to present the bank's annual results.

Details were still being worked out about the risk fund, which BayernLB said would help it shoulder losses on its 24 billion euro portfolio of complex asset-backed securities (ABS).

BayernLB said the landesbank itself would take the first 1.2 billion euros in future losses on its ABS investments. It was speaking to its owners -- the state of Bavaria and local savings banks -- and to the European Commission, which sets rules about state aid, about arrangements to cover the remaining 4.8 billion euros.

Bavaria's Finance Minister told the state's parliament on Thursday that the guarantee would come either from the state and its savings banks or an investor would be found to cover the risk for six years.

"A guarantee will secure Bavaria's own assets. Acting decisively prevents damaging our bank," said Erwin Huber, who is also BayernLB's deputy chairman.

Huber acknowledged errors in the bank's communication but said its supervisory board could not have foreseen the crisis.