WestLB facing another huge loss

BANKING group WestLB is tipped for another huge loss this year as it continues to count the cost of its involvement in the Boxclever deal.

Reports in Germany say prosecutors are stepping up their probe, which was triggered by a regulatory investigation into WestLB's risk measures.

The fallout is likely to mean fresh pressure on Robin Saunders, the London-based banker who led the funding for Boxclever.

German analysts say WestLB, the country's fifth-largest bank, is facing losses as high as e1.7bn (£1.2bn), almost equalling the damage inflicted last year.

WestLB called the reports 'speculation' but said it probably would end the year in the red, with all risks factored in and on the books.

The Boxclever deal sparked an investigation by the regulator BaFin, in turn leading to a probe by prosecutors in Dusseldorf.

It emerged last week that more executives have been drawn into the inquiry. There is speculation that the spotlight could also fall on Saunders and on Andreas Seibert, to whom she reported.

Saunders, head of the bank's principal finance unit, arranged the financing for Boxclever, a TV rentals business, in 1999. One area of the inquiry is whether the deal went ahead with sufficient collateral-The risk-management procedures at WestLB have changed since the Boxclever deal, which accounted for a £430m writedown in 2002, driving the bank's provisions for risk up to £1.9bn last year.

The bank's management was severely criticised and several people have been fired, including WestLB chief executive Jurgen Sengera.

Executives of WestLB met on Saturday as the speculation, fuelled by news magazine Der Spiegel, began to leak out. 'The bank is fully functional,' said supervisory board boss Bernd Luethje.

Reports, however, said prosecutors believe the bank failed to apply basic profit-and-loss valuations for 2000, 2001 and 2002, which is an offence under German banking laws.

'During the period that the credit guarantees (for Boxclever) applied there was no reliable flow of cash,' said German business daily Handelsblatt.

The Principal Finance unit has effectively been up for sale since August and the bank's Panmure investment division is also on the block.

The problems have left rivals certain that WestLB will need to raise cash from investors some time soon. Its management, however, has repeatedly pledged that fresh funding would not be needed.