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Berlin (pte056/28.01.2003/12:06) - German capital Berlin's mountain of debt is set to grow after the sole bidder for the struggling public-sector bank Bankgesellschaft Berlin http://www.bankgesellschaft.de/ has said that he might withdraw his bid.
The city's hopes of raising 1.5 billion euros by selling the bank took a blow after J. Christoper Flowers of BGB Capital, told Manager Magazin that he might withdraw. The only other bidder in the race, US investment fund Lone Star Funds, pulled out last month.
Furthermore, the Norddeutsche Landesbank Girozentral, which owns an 11 per cent stake in the Bankgesellschaft Berlin, has made it clear that it would not mount a joint offer to buy the city's stake in the bank unless the city assumed certain real estate risks.
Berlin has been trying for over a year to find a buyer for the bank that lost billions on murky dealings on the East German property market in the 1990's plunging the capital into the worst financial crises since the second world war.
The bank has managed to cut its operating losses from 162 million euros in 2001 to 118 euros in 2002. Moreover, the city has assumed most of the real estate risks, which some analysts say could involve losses as high as 20 billion euros.
But the city has not gone far enough in assuming real estate and commercial risks, said NordLB Chief Executive Officer Manfred Bodin.
A source close to Flowers also said that the US investor might go ahead with his bid if the city gave more information about the bank's loans or knocked down the bank's price.
However, experts warned that irrespective of whether it sells the bank the deal would not be enough to solve Berlin's financial crisis.
With debts now estimated to total 40 billion euros, Berlin has to spend almost its entire revenue on servicing debt interest. An austerity programme and sweeping job cuts in the city administration has only managed to cut the speed by which the debt is growing but no more.
"If Berlin was a public limited company, then it would have been bankrupt long ago," said Wolfgang Jouy in charge of Global Corporate Relations at NordLB.
However, Jouy was confident that any investors in Berlin would get their money back.
"Like New York, the city might be theoretically bankrupt but investors in Berlin will get their money back because the federal government will step in if needed," Jouy said.
"At the end of the day, Berlin is the capital of the new, united Germany. The government cannot afford to allow it to collapse," he added.
Berlin has also said it will go to court to get back some of the money it has had to spend on huge infrastructure investments needed when the Berlin wall fell and it became Germany's capital.
The German government currently gives Berlin about 100 million euros a year to support the city's museums, operas and theatres.
And despite the confidence of those like Jouy the future is still uncertain. The German finance ministry for example has repeatedly ruled out a rescue by the federal authorities.
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