The owners of stricken state lender SachsenLB aim to sell the German bank quickly after its near collapse under heavy losses from U.S. subprime mortgages and other risky debt, sources familiar with the matter said.
Last week a group of state banks said they would rescue SachsenLB, the second German casualty after the subprime mortgage crisis led to difficulties in world credit markets.
In return for a 17 billion euro ($23.1 billion) credit line to keep SachsenLB afloat, its owners -- the eastern state of Saxony and local community savings banks -- were forced into agreeing to its sale.
At least four regional state lenders, or Landesbanks, are interested -- WestLB, LBBW, NordLB and BayernLB, one source familiar with the matter said on Friday.
SachsenLB's owners will decide to whom to sell over the weekend, he said, adding that Stuttgart-based LBBW was the favorite.
A second source said LBBW, Germany's biggest Landesbank, was primed to buy as long as the risks were ring-fenced.
The sale is a milestone in Germany, where few state-owned banks are ever put up for auction.
It also is an indication that the subprime mortgage crisis may ultimately loosen the German government's dominance of the country's banking industry.
Landesbanks such as SachsenLB were traditionally an arm of local government used to influence economic development. Their owners are reluctant sellers, fearing a loss of this influence.
But the Landesbanks have been among the hardest hit by the subprime crisis. Many had entered this risky territory in a bid to shore up profits after much of the support they had received from government was outlawed by the European Union.
Germany has taken the brunt of the European fallout so far from problems stemming from subprime home loans as two of the country's banks have almost collapsed, requiring high-profile industry bailouts.
The lifeline to SachsenLB came hot on the heels of the near collapse of small-company lender IKB. It was also saved by a group of banks including state-owned lender KfW, its biggest shareholder.
Earlier on Friday, another Landesbank -- BayernLB -- acknowledged it too had invested in subprime U.S. home loans but did not say how much it had tied up in the risky mortgages.
BayernLB's announcement further dents the image of German banks abroad. Foreign banks had already been growing wary of lending to them as the casualty toll from subprime problems rises.
Earlier this week, the head of state bank WestLB said the country's banks faced a crisis because foreign banks were reluctant to lend to them.
Alexander Stuhlmann told journalists the sector was in a not uncritical situation, adding that German banks had created the impression abroad that the whole sector had a problem by rescuing IKB.
Germany's central bank and government have repeatedly called for calm over the credit spasms unleashed by the uproar.
Government involvement in banking has made Europe's biggest economy one of the continent's most overbanked, squeezing profits and forcing lenders to look abroad for new ways to bolster profits.
As a result, German groups invested heavily in packets of debt that included risky U.S. home loans, racking up profits as the market boomed.
But slowing house prices and higher interest rates sparked defaults on subprime mortgages -- given to people with a weak credit record -- and left those banks facing heavy losses.
-- Additional reporting by Christian Kraemer in Munich, Jonathan Gould in Frankfurt and Hendrik Sackmann in Stuttgart