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BayernLB: Chapter 7


69) Süddeutsche 10.01.2010:

Takeover of a majority stake of the HGAA - what knowledge did people concerned with the deal have about the HGAA in 2007?

The documentation confiscated from the HGAA in October 2009 tells a story of the wild history of this bank.
Going back to the 2006: The Carinthian state bank HGAA grew steadily but suffered under a chronic lack of capital. The far right-wing state premier Jörg Haider (killed in a car accident in October 2008) needed the money of his "house bank" HGAA for his "bread and games". Extracting the money required ever more "financial magic". For example, the state generated several hundred million Euros by issuing convertible bonds as an advance on a fictitional floatation of the bank.

13 Sept 2006: The supervisory council for the HGAA held a meeting on the raising of capital to compensate losses of €330m caused by currency speculations of an employee. The chairman of the board at the time, Kulterer, had attempted to conceal this loss.
According to the report of a Viennese inquiry commission, no other bank in Austria has had so many negative headlines within the last five years. The Austrian central bank (Nationalbank) has been following the activities of the HGAA intensely. The audit reports contain countless references to missing enterprise controlling, incorrect evaluation of foreign mortgages, incorrect security and credit rating. An audit of the HGAA subsidiary in Slovenia in 2005 ends with the conclusions: risk appetite very big, no development of an overall management of risk, sanctions imposed by the slovenian central bank. The HGAA Board was given a "warning". And in Croatia much of what is regarded as standard for normal bank business was missing. On the average, every second credit application was inadequately checked. The balance sheets were stretched, the number of non-performing credits grew steadily.

November 2006: In Canada the Liechtenstein subsidiary of the HGAA took up trading with "spam shares" (cf. Chapter 3 [25]). The chairman of the HGAA Board, Kulterer, switched over to become the head of the supervisory council [Eulenspargel: to watch over his own past activities]. Later on, he was convicted of falsifying the balance sheet, and sentenced to a fine of €140,000. He saw the falsification as "economically correct, but juristically incorrect".

19 Dec 2006: A member of the Supervisory Council complained that the state was misled into issuing the convertible bonds (see above) by incorrect information. An acquaintance of the previous Carinthian State premier Haider warned of letting the discussion become public.

Preparations:

A group of investors led by the Hamburg fund manager Tilo Berlin buys 25% of the HGAA stock (cf. Chapter 6 [68]). A portion of the required €650m was then financed by the BayernLB. Berlin is is intimate with the then chairman of the BayernLB Board (they were together at another state bank - the state bank of Baden-Württemberg, LBBW). A member of the HGAA Supervisory Council wonders why this investment group is prepared to pay more than the current market value.
The BayernLB is quite intent on obtaining the majority of the HGAA (a previous attempt to buy an Austrian bank had been unsuccessful). The shares held by the Berlin investor group, made possible by a helping hand from the BayernLB, were to be sold to the BayernLB as part of the take-over.
The assignment to assess the state of the HGAA was given to Ernst & Young. Their audit report contains the passages:
"We (Ernst & Young) expressly point out that between the first and second dataroom phases a multitude of folders was replaced (...) We could analyse the answers to (...) questions we posed only sparingly, because the answers were contained in unordered folders that were incompletely made available. Further, we would like to underscore that we hold a dataroom availability of 15 days as inadequate for a transaction of this order of magnitude. We cannot ensure that we have found all risk-related circumstances that we would have discovered had adequate time been available (...) We had no access to subsidaries (...) Finally we would like to point to the large amount of inadequate information in the areas of taxation, real estate, and personell".
According to the BR (TV) report "quer" on 21.01.2010, the Ernst & Young report warned of risks, and nowhere recommended a purchase. A meeting protocol mentions that the BayernLB Supervisory Council members themselves had not even read this report. They gave their consent only on the basis of what they were told by word of mouth.

The BayernLB offered €1.65bn for 50% + 1 share, despite the fact that existing estimations of the value of the HGAA ranged between €1.8bn and €2.5bn. I.e. the offer was € 0.8bn ~ 1.5bn above market value.

Subsequently, the BayernLB paid dividends of €50m. The Berlin investment group sold their stock to the BayernLB, and achieved a profit of around €150m.


[70] Spiegel 15.01.2010:
The investment group behind Tilo Berlin contained a number of better known people: The multimillionaire Ingrid Flick, the one-time boss of the Deutsche Bahn (state-owned railways) Heinz Dürr, a member of the industrial magnate family of Piëch (Porsche, VW, MAN), and the one-time director general of Nestlé, Helmut Maucher. The administrator of the private Flick trust stated "Mrs Flick invested one million, which for her was a rather modest sum". A very short time later, Mrs Flick had made a profit of €400,000, a yield of 40%.

The previous CSU* chairman (and previous member of the the BayernLB Supervisory Council) Erwin Huber warned his successor, Horst Seehofer, "to act as if there were an old and a new CSU". The driver in the acquisition of the HGAA had been the BayernLB Board. The politicians sitting in the supervisory council nicked it through, without ado.
*) Christian Democrats, then the Bavarian ruling party


71) Spiegel 12.01.2010:
72) Spiegel 26.12.2009:
73) FTD (print version) 06.01.2010:
74) ARD/BR (TV) 18.01.2010:

"BayernLB scandal reaches Croatia"

Subsidiary holdings of the HGAA were held by Croatia. Therefore, in the case of a take-over by the BayernLB, also croatian supervisory councils would have to give their OK. As reported in the ZDF (TV) magazine "Frontal 21" on 12.01.2010, in an interview with Croatian TV in August 2007, the Bavarian state premier then, Edmund Stoiber, stated that "we have an exceptional interest in the success of the HGAA take-over. If this deal were to fail, it would be bad for Bavaria and for Croatia (...) I have also made it clear to the (Croatian) national bank that this could lead to a worsening of the Bavarian-Croatian relationship".
After the deal was completed in May 2007, the Croatian national bank and its president, Zeljko Rohatinski, vetoed the purchase. The reason was misgivings about the previous business conducted by the BayernLB in Croatia.
Today, Rohatinski blames Stoiber of excercising political pressure in 2007, and of currently "not saying the truth" about his role then.
In August 2007 Stoiber met the Croatian prime minister of that time, Ivo Sanader. According to "Frontal 21", at that meeting Stoiber emphasized that the HGAA deal was necessary for the Balkan strategy of the BayernLB. The HGAA fits excellently to the "clear orientation of the Bavarian state bank in the direction of south-eastern Europe". Shortly after this meeting, the Croatian national bank withdrew its veto against the deal.
The Croatian media charge Ivo Sanader to having aided the take-over and to having accepted a commission for this.

Risky mortgage and leasing transactions in Croatia are a major component in HGAA losses.

The Croatian state prosecutor has begun investigating the possibility of offences committed in connection with the HGAA. Allegedly, documents confiscated in Austria point to such offences. In particular there are open questions concerning the relation of the HGAA to ex-general Vladimir Zagorec (who was recently sentenced to a seven year prison term because of embezzling a suitcase of diamonds that he had received from an arms dealer during the Jugoslav civil war of the 1990s). The HGAA had financed numerous real estate and tourism projects of the ex-general. The bank currently rejects any charges of money laundering.



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