The demise of the BayernLB - A protocol, compiled from news reports -
Period covered (to date): 2005 - March 2010 Sources: Online articles of the Newspapers Süddeutsche Zeitung (in the main), FTD, Der Spiegel
Establishment of the BayernLB: 1972 Political affiliation: the CSU (Christian Socialist Union) was the only ruling party in the Bavarian parliament until September 2008. Since then the CSU is the senior partner in a coalition. Owners of the BayernLB were the State of Bavaria, and the Union of Bavarian Savings Banks, each originally owning 50%. Today the bank is almost completely in the hands of the State. Currently, the Board of Supervisors consists of 11 members, among them the Finance Minister, the Minister for the Interior, the Minister for Economy-Infrastructure-Transport, and a principal (undersecretary) of the Finance Ministry.
Homepage of the BayernLB
HGAA = the Austrian Bank Hypo Group Alpe Adria International AG. The BayernLB purchased a majority stake in 2007; looking back - under dubious circumstances.
1m = 1 million
1bn = 1 billion = 1000 million
Innovative finance instruments refers risk transformation functionality (e.g.) Conduits, Special Purpose Vehicles (SPV), Structured Investment Vehicles (SIV)). In general, only specialists have insight into how these things work, and there is a reliance on statistical models that do not necessarily adequately reflect reality. And not everyone is aware of which assumptions underlie these models.
ABS = Asset Backed Securities
Chapter 1 2005 The starting point: The EU revokes the possibility of state guarantees which the state-owned banks had enjoyed until now, and which gave them a competitive advantage vis-à-vis private banks. As reaction, the state banks now begin to look for and try out other business models.
Chapter 2 Mai - Sept 2007
The state banks plunge head-over-heels into international deals for which their experience is questionable. In particular their engagement in US credit securities and in Eastern Europe turns out to be a pitfall. The first ramifications of the emerging financial crisis make themselves felt. The BayernLB supervisory board appears uninformed. The BayernLB buys a majority stake in the austrian HGAA for €1.6bn.
Chapter 3 Jan - Juli 2008
The losses incurred due to the crisis grow. Dubious business behaviour of the Liechtenstein subsidiary of the BayernLB. To rescue the BayernLB, the government offers a mixture of capital and guarantees, but the EU competition control office has still to give its consent. For the first time, a steadily growing annual loss replaces the habitual profits. The savings bank union as part-owner is becoming nervous.
Chapter 4 Sept -Jan 2009
The US crisis reaches its first climax with the bankrupcy of Lehman Brothers, which does not leave the BayernLB unscathed. Further bad news from the USA, Iceland and Eastern Europe. The volume of state aid grows. The State of Bavaria buys most of the savings banks shares of the BayernLB, thereby becoming the de-facto sole owner. The losses continue to grow.
Chapter 5 Feb -Sept 2009
The state prosecutor begins to show interest for the activities of the BayernLB. Ever more banks apply for state aid. The new austrian subsidiary HGAA is in difficulties. The EU announces the conditions under which the BayernLB is permitted to receive aid from the state. Comments on politics, business and the man-on-the-street. The growing problems of the HGAA.
Chapter 6 Sept 2009 -Jan 2010
BayernLB auditor versus politicians: the "phantom of the bank" speaks out, only to retract his assertion in the next moment. More on the purchase of the HGAA in 2007 and the role of the BayernLB. The HGAA is handed over to the austrian state for a symbolic €1. The EU conditions hurt the bavarian state budget. The discovery of three likely 'baddies' distracts from the role of the politicians in the affair.
Chapter 7 Dec 2009 -mid Jan 2010
New information on the bad state and governance of the HGAA, knowledge that insiders had at the time leading to the majority-acquisition by the BayernLB 2006-2007. Dubious transactions and political pressure on the croatian central bank. Inquiries also in Austria and Croatia. Money laundering?
Chapter 8 Mid Jan 2010 - ...
Investigations continue against BayernLB Board members, but none against the supervising politicians. Profit/loss balance for 2009 and job cuts. Old+new business focus.