Stuttgart-based German wholesale lender Landesbank Baden-Württemberg, better known by its acronym LBBW, has agreed to acquire Leipzig-based German lender SachsenLB, felled by the US subprime mortgage drubbing that has hit several US and European lenders. Its Irish affiliate had been an aggressive investor in securities tied to US subprime mortgages.

The deal between the two was signed on 26 August, a Sunday, after less than a week of negotiations and the acquisition will become effective from 1 January 2008. Its operations will be integrated to those of LBBW and become its subsidiary.

State-run LBBW, among Germany''s five largest banks with total assets of €428 billion, will pay €300 million ($411 million) and also provide an emergency infusion of €250 million into SachsenLB. It does not expect the takeover to have any negative repercussions on its own rating.

LBBW said the exact price will be determined at the end of the year and it retains the right to withdraw from the deal if SachsenLB''s subprime exposure grows.

The LBBW deal allows SachsenLB''s current owners, Sachsen-Finanzgruppe and the Free State of Saxony, a minority stake in the enlarged group. . The two owners will transfer their shares to LBBW, receiving LBBW shares in return.

Landesbank is the term used for wholesale lenders owned by Germany''s local governments. These banks have traditionally been responsible for the banking activities of their provincial governments.

SachsenLB becomes the second German bank to buckle under the impact of the US subprime mortgage crisis. Last month, IKB Deutsche Industriebank AG had to be provided a €8 billion bailout from German regulators and banks.

Earlier a group of state-run banks had provided SachsenLB a €17.5-billion emergency loan to keep the bank on its feet while politicians have called for a merger with a larger German lender

Landesbank Baden-Württemberg said in a statement that the acquisition would create for it an "outstanding market position in the region that has the strongest economy in eastern Germany".

It said the two banks would join forces in the future to expand their SME business and high-end retail banking operations in Saxony.

Sachsen LB will also be LBBW''s centre of expertise for eastern Europe, with which it enjoys an excellent relationship, especially with Poland, the Czech Republic and Slovakia, because of its geographical proximity.

Dr Siegfried Jaschinski, chairman of the board of managing directors of LBBW, said in a statement, "Regardless of its current problems, Sachsen LB has a strong market position in its home region. We intend to exploit this potential." LBBW expects Sachsen LB to recover from its current problems soon.

also see : General reports on Banks & Financial Institutions