US Investors Pool Efforts to Bid for BGB

Christopher Flowers, the U.S. investor and corporate restructuring specialist, and private equity outfit Texas-Pacific Group on Wednesday said they would be pooling their efforts to prepare a bid for troubled German bank Bankgesellschaft Berlin.

They said they had formed for this purpose BGB Capital Partners, a new investment vehicle in which they would each hold 50%.

Flowers and TPG explained their decision by pointing to the considerable challenge involved in turning around the ailing bank. By coming together, they would be able to devote the optimum financial might and expertise to this task. They said Berlin's finance senator, Theo Sarrazin, had been informed of the move.

Flowers and TPG had already held separate talks with the city of Berlin on buying the bank.

People close to Flowers and TPG said BGB Capital Partners would see an investment in BGB as a long-term proposition.

BGB, Germany's tenth-largest banking group and the only German institution to combine state and private-investor ownership, recently avoided becoming the latest victim of Germany's wave of major insolvencies when Berlin's new senate voted to cover all the bank's potential liabilities for the next 30 years, which could run to as much as 21 billion euro.

That decision cleared the way for a sale of Berlin's stake in the bank, which rose to 81% after it fully subscribed a 1.7 billion euro capital increase into the group to make up for the losses it had suffered in its real-estate business.

But the city-state has yet to start inviting bids. Finance Senator Sarrazin has said that he plans to be holding talks with a designated preferred bidder by the summer, and to have the BGB sale decided by the autumn. But he has also strongly indicated that he wants to solicit more bids.

With the formation of BGB Capital Partners, the number of likely bidders has shrunk to two.

The new venture's main rival is likely to be a consortium made up of state-owned bank NordLB and the public-sector German savings bank association DSGV. DSGV spokesman Stefan Marotzke said his association and NordLB remained interested in BGB. He added that it would have no influence on the consortium's bid whether it faced one or two rival challengers.

The new BGB Capital Partners on Wednesday urged the Berlin government to speed up the sale of the bank, pointing out that the sale process has already taken over a year. The longer the process took, the greater would be the problems inherited by the new owner, they argued.