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BayernLB: Chapter 5
Premature acquittal: The state prosecuter is in the middle of investigating whether BayernLB managers were responsible for the calamity of the bank. On the basis of an investigation report of the auditors Ernst & Young, the Bavarian government has itself already testified that in the time from 2006 the bank managers as well as the members of the Supervisory Board [e.g. the Finance Minister] all acted correctly. The actual content of this report was not
Whether the current information is sufficient for pressing charges against active or previous members of the BayernLB Board is still a subject of debate within the Justice Ministry. The department XI (trust breaches, fraud, organized criminality) is expected to make a decision shortly. It looks as if the senior prosecuter, Stephan Reich, intended to make an indictment. However, according to inofficial sources, exactly at this point in time he has been advised to transfer to a different position (!)
To date, six banks have applied for help (guarantees and capital) from the national banking rescue scheme: the Hypo Real Estate was given €102bn, the Commerzbank €33bn, the BayernLB and the HSH Nordbank each €30bn, the IKB €15bn, and the WestLB €5bn. Five further banks are to follow.
The ailing BayernLB subsidiary HGAA currently requires €1bn aid because of the Crisis. It must be feared that this is only the beginning. The dramatic economic downturn in eastern Europe centrally affects the financial sector there, and therefore also all those westeuropean institutes, like the BayernLB, that have tried their luck in the East.
It seems that the BayernLB operations were questionable to a much greater extent than was previously known. This can be concluded from the assessment report of Ernst & Young that has been kept locked up by the Bavarian government.
This report contains several critical passages that contradict what the government had alleged (e.g. that the state bank invested only in "high-grade" securities, and that all ABS positions were subject to a "detailed analysis" before the transactions were carried out). Instead, Ernst & Young reports that the ABS transactions were evaluated afterwards
. This was allegedly done because these acquisitions were restricted to papers of "highest rating".
The a-posteriori practice led in Summer 2007 to problems. The BayernLB had bought securities for €1.4bn. According to Ernst & Young, the bank-internal risk department afterwards gave a negative judgement on these transactions. According to the internal provisions of the bank, these transactions should have been cancelled immediately. However, this was no longer possible, because the securities had already strongly lost their value. As reaction "to the difficult market conditions", the Board of the BayernLB suspended the rules - at first until the end of 2007, and again until the middle of 2008.
The Bavarian Ministry of Finance continued to refuse access to the Ernst & Young report.
The HGAA, which had recently been propped up with €1.6bn from the BayernLB and the Austrian state (thereby now belonging to 67% to the BayernLB), once again needs new guarantees, this time €700m. This guarantee is planned to come from the Austrian State of Carinthia. However the government of Carinthia is only prepared to make this pledge if the job cuts planned by the BayernLB will not affect the HGAA.
The EU has come to a decision on the conditions regarding state aid for the BayernLB. The bank must sell all its subsidiaries. The proceeds must be used to (partly) pay back the state aid received. The total assets would thereby be reduced from €485m in 2008 to €271m in 2013.
Since an economic recovery is not expected before 2011/2012, acceptable prices for the sale of the subsidiaries will not be achievable before 2013/2014. The experts warn against too early sales, which could result in prices below the value of these subsidiaries in the current balance sheets. Such asset losses could endanger the stabilization attempts, particularly with regard to the HGAA.
Commentary: "Save now, pay later"
Can we retain our standard of living only if the banks are in good condition? The politicians mislead the population over the costs of the rescue packets for the banks.
Chancelor Konrad Adenauer once characterized the concept of the Germany Inc.: "What is good for German enterprises, is also good for the people at large". This dictum was forgotten over time, and later on it was even turned upside-down. German enterprise CEOs reveled in growing profits while ever more workers and employees had ever greater difficulty to finance a normal life.
With the outbreak of the global financial crisis, the Federal government discovered a new (old) leitmotif. What the Germany Inc. was for Adenauer, is now for Merkel the systemic or system-relevant bank
: "Only if our banks are healthy, can we continue to live in prosperity".
€10bn were needed to save the BayernLB from bankrupcy. But the CEO, Michael Kemmer, intends to keep paying out boni to his Board members. He fears that otherwise "their motivation could suffer".