„Es gibt ein paar tausend Banken in Europa, da kann man nicht alle kennen“

“There’s thousands of banks in Europe and you can’t know all of them”

is how BayernLB supervisory board member and former Bavarian state Economy Minister Erwin Huber (C.S.U.) supposedly explained in his April Fools Day testimony why he gave his approval to purchase the Hypo Alpe Adria yet knew nothing about the Carinthian bank. An S.P.D. politician responded, “Anyone who publicly documents their political inadequacy so authentically is, as the chair of the Economy Committee, a problem.” Mr. Huber has been chairing the Bavarian state parliament’s Economy Committee since October 2013.

Munich prosecutors had said they did not want to prosecute BayernLB’s supervisory board members for approving overpayment of >500 million euros in the purchase deal—plus some bribes that might be easier to prosecute, in separate trials—because the supervisory board was fooled by the dishonest representations of the bank’s management board, the defendants in the current trial. Three high-ranking C.S.U. politicians from the supervisory board have now testified at the management board’s criminal trial and stated that they were satisfied with the information presented to them by the management board in its argument for purchasing the HGAA.

Defendants in the trial of the BayernLB management board include Michael Kemmer, who moved on to become “managing director of the German Bankers’ Association” [Hauptgeschäftsführer des Bankenverbands], “an influential lobbyist.”

At the time BayernLB bought Hypo Alpe Adria, C.S.U. politicians on BayernLB’s supervisory board [Kontrollgremium] such as Bavarian finance minister Kurt Faltlhauser, interior minister Günther Beckstein and economics minister Erwin Huber wanted the Bavarian state bank to expand, into the Balkans. Bavaria’s then-governor Edmund Stoiber (C.S.U.) made a similar statement to journalists while on a visit to Croatia about then, ZDF heute journal reported.

Apparently BayernLB also bought a loss-plagued Hungarian bank that they want to sell.

(Ess   kipped   eye n   pah   t OW! zenned   BONK en   inn   oy ROPE ah,   dah   cannes   mon   nichh t   OLL ah   ken en.)

Anklagebehörde

“Prosecuting authority,” prosecutors’ office.

The Bavarian state bank BayernLB (Bayerische Landesbank), owned by the state of Bavaria and the Sparkasse banks (the largest German public bank), bought the Austrian bank HypoGroup Alpe Adria in 2007 and lost billions of euros as a result. On 07 Aug 2013 the Munich regional court Münchener Landgericht I announced it would not permit prosecution of charges brought against the entire Landesbank’s management board [Vorstand] while criticizing that charges hadn’t been brought against members of the higher-level overseeing “administrative board” [Verwaltungsrat], which gave permission for the sale. The supervisory Verwaltungsrat contained important C.S.U. politicians who might have been thus being protected by Bavarian prosecutors, the Bavarian judges imputed. Bavarian opposition parties S.P.D. and Freie Wähler [Free Voters] had filed complaints against BayernLB Verwaltungsrat members and state ministers Erwin Huber, Günther Beckstein and Kurt Faltlhauser plus some less important C.S.U. politicians for breach of trust of bank assets [“Veruntreuung von Bankvermögen”] in the Austrian acquisition, according to Süddeutsche.de and tagesschau.de.

BayernLB’s management board allegedly cited a falsely inflated purchase price to the supervisory administrative board, so theoretically criminal charges should be brought against management board members, according to tagesschau.de. But the Munich Landgericht I court denied prosecution of that on 07 Aug 2013, citing the latitude enjoyed by managers in negotiating sales. This allegedly angered Bavarian state prosecutors. Also angered by accusations they’d protected C.S.U. politicians by not bringing charges against members of the higher-level Verwaltungsrat [administrative board] supposed to monitor or do “controlling” of BayernLB’s management board, Bavarian state prosecutors responded that the management board members had failed to adequately inform the higher-level administrative board; indeed the supervisory Verwaltungsrat was deliberately defrauded with malice aforethought (“vorsätzlich arglistig getäuscht”) by members of the BayernLB management board, in the opinion of the prosecutors. The supervisory administrative board that okayed the deal consisted of people from the Bavarian state government (ruled by the C.S.U. since 1946) headed by Edmund Stoiber and people from the Sparkasse banks.

The German bank manager Bernie Ecclestone was accused of paying a bribe to was a member of BayernLB’s management board [Vorstand], not supervisory board [Verwaltungsrat].

In its 07 Aug 2013 announcement in the ongoing discussion about whom to prosecute at BayernLB, the Munich Landgericht noted that this sale of banks between state governments was partially a political act. But because no one could have foreseen events, the Munich Landgericht was only going to look into the BayernLB management board’s criminal culpability in overpayment of an additional 75 million euros lost by subsequently purchasing additional shares, and not into the BayernLB management board’s overpayment of 550 million euros in the 1.7-billion-euro deal as the prosecutors originally proposed.

Prosecutors filed a complaint about the Landgericht’s decision not to allow a criminal trial against the BayernLB management board for the lost half billion; the Munich higher regional court [Oberlandesgericht] “will now have to decide the dispute taking place in its own house.”

Before Bavaria bought it, according to the Guardian.co.uk, the Carinthian state government-owned Hypo Alpe Adria “acted as financier” for the horrifying Jörg Haider, charismatic leader of a terrifying populist racist Austrian political party that promoted hatreds in order to surf them to power. WienerTageszeitung.at wrote that HGAA had had to help support Haider’s Carinthian state government’s “patronage policies” [“gönnerhafte Politik”]. The recent Munich Landgericht I court decision about how to prosecute the Bavarian side did allow prosecution of an accusation that Jörg Haider, Kärntner Landeshauptmann [“Captain of Carinthia”] at the time of the sale, received a soccer stadium sponsorship bribe from BayernLB (2.5 million euros). An Austrian website also talked about overpayment for the expert opinion of an Austrian tax adviser associated with Haider as another possible bribe to him from the deal (6 million euros for six pages). No details found yet about money improperly funneled to Haider & Co. before the sale, when his party controlled the government that owned the bank.

According to the Manager-Magazin.de article, a 2007 audit by the Österreichische Nationalbank [Austrian National Bank] reported that Hypo Alpe Adria was shuffling fake capital around as early as spring 2006 to hide its losses, through obscurant Liechtenstein entities, and selling stock to itself to create the illusion of solvency. There was no Austrian regulatory follow-up on the audit report apparently.

BayernLB’s purchase of HGAA has already sparked multiple trials, with more to come. For example, Manager-Magazin.de wrote that Munich prosecutors initiated a criminal trial against BayernLB management board members on 05 May 2011—that trial hasn’t started yet—and BayernLB sued its former management board members for 200 million euros in damages in a civil trial that actually did start, on 19 Jun 2012. An Austrian criminal trial sentenced a Carinthian state party chief to five years in prison on 10 Oct 2012 for diverting money from the sale to his political party (a state government coalition partner with Jörg Haider’s FPÖ). The current head of the Bavarian C.S.U. party, Horst Seehofer, is to testify in Vienna before a commercial court [Handelsgericht Wien] about the schlamassel. When they gave Hypo Alpe Adria back to the country of Austria, did BayernLB sign a paper saying they would not sue for damages? The Vienna trial is about 3 billion euros of Bavarian taxpayer money that now-nationalized Hypo Alpe Adria does not want to return; this would be in addition to the 3.7 billion euros Bavaria already spent to bail out the bank.

Update on 24 Oct 2013: Bavarian prosecutors won their appeal! The Munich Oberlandesgericht overturned the Munich Landgericht’s decision and will be allowing full prosecution of ex-C.E.O. Werner Schmidt and six of the seven members of the BayernLB management board on the counts sought, for breach-of-trust losses of 550 million euros in the 2007 purchase of Hypo Alpe Adria in addition to the 75 million lost on extra HGAA stock bought after the purchase.

Update on 27 Feb 2014: Three former management board members of Hypo Alpe Adria were given prison sentences by an Austrian court for granting investors buy-back guarantees and thus, the court said, costing the bank several million euros. The Klagenfurt court [Schöffensenat] said they held back important information when they sold Hypo Alpe Adria to Bavarian state bank BayernLB. A 2.5-million-euro dividend they issued was also not in order, the court said.

In this breach of trust trial, former management board member Josef Kircher was sentenced to three years, some of which was changed to probation because he was willing to testify. Former management board member Siegfried Grigg was sentenced to three and a half years. The Flick Foundation was fined 600,000 euros. Former H.A.A. C.E.O. Wolfgang Kulterer was sentenced to one year. He has already been sentenced to several years in a related Hypo Alpe Adria matter in January 2014, when he admitted having kept mumm about side agreements. Former Hypo manager Tilo Berlin is also a defendent in the breach of trust trial but was unable to appear for health reasons, delaying resolution.

(ON clog ah beh HEARD ah.)

Untreue wegen mangelndes Risikomanagement

Breach of trust due to inadequate risk management.

The entire former management board of northern German bank HSH Nordbank is on trial in Hamburg for approving a deal in 2007 allegedly without sufficiently informing themselves first (“bullwhipping it through in only three days right before Christmas” on the basis of a memo that did not contain the data required by due diligence, so the prosecutors). This is the first time an entire bank board has been put on trial in Germany, but it presumably won’t be the last.

In 2007, to avoid receiving a lower rating from the Wall Street ratings agencies one year before the bank’s scheduled stock market launch, prosecutors said, HSH Nordbank moved a collateralized debt obligation package that included risky real estate and commodities paper “away” into an entity called Omega 55, for which the French bank BNP Paribas guaranteed. In return, HSH guaranteed when BNP Paribas moved risky paper, valued at 2.4 billion euros and including Iceland government bonds from Lehman Brothers, into the Omega 55 entity [Zweckgesellschaft, “special-purpose vehicle” according to Bloomberg.com]. HSH’s guarantees for BNP Paribas securities ended up costing HSH >150 million euros in 2008; ultimately in the course of the global financial crisis the bank had to be bailed out by 30 billion euros that included taxpayer money from its majority owners, the German states of Schleswig-Holstein and Hamburg, and taxpayer money from the German bank bailout funds BaFin and SoFFin. Omega 55’s losses were in part kept off the bank’s books, which is why two of the six former HSH board members are further going to be tried for balance sheet falsification [Bilanzfälschung, “false accounting” according to Bloomberg.com]. Guilty verdicts in the breach of trust trial could also result in a civil lawsuit from HSH against its former managers.

Update on 23 Jul 2013: Bloomberg.com reported that charges were also brought against managers from Bayerische Landesbank (BayernLB), Sachsen LB and Landesbank Baden-Württemberg, but these cases have not yet gone to trial.

Update on 16 Dec 2013: HSH Nordbank has been accused of dividend stripping.

Update on 28 May 2014: Hamburg prosecutors are asking for probation and fines of up to 150,000 euros, after they reduced their estimate of damage done to the bank from ~150 million euros to ˜50 million. This is in the breach of trust trial, for signing off on what was a “circular transaction” in 2007, without questioning inconsistencies in the information presented to them.

Update on 09 Jul 2014: The entire former management board of HSH Nordbank was found innocent. Dubious deeds and dereliction of duty, said the judge from the Economic Crimes Court [Wirtschaftsstrafkammer], but he didn’t think there was enough evidence to prove serious dereliction of duty. Also there’s no evidence that the HSH Nordbankers profited financially from the damage they caused. Trials against managers from IKB and the Baden-Württemberg Landesbank for their risk management before the global financial crisis have also been canceled, said Spiegel.de. At the time, what those bankers did was neither illegal nor unusual.

The states of Hamburg and Schleswig-Holstein had to pump 13 billion euros into HSH Nordbank to bail it out.

Update on 10 Jul 2014: The judge gave the prosecutors the option of appealing this decision, and they will appeal it to the supreme court in Karlsruhe.

(OON troy ah   vague en   MON geln dess   REESE ee co men edge ment.)

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