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.)

Windjammerparade

Annual parade of large sailing vessels with steel hulls at the Kieler Woche festival in Kiel, northern Germany, traditionally led by the Gorch Fock.

(VINNED yommah pah RAH deh.)

Datenschutzsiegel

“Data protection seal of approval.” A 2008 book on data protection in Germany proposed creating independent auditing agencies who would inspect public and private organizations. If the organizations met standards for data protection, transparency, data security, etc., they would be issued the auditors’ “quality seal” which they could use in their marketing materials as a reputation booster. The auditors would be motivated to keep their own reputation high by not being pushovers, presumably. Multiple reliable auditors could watch each other. Set up well and done honestly, these inspections could ultimately enhance efforts at leak control by keeping whistleblowing from being the only way visible to try to fix the most broken organizations. When these inspectors published what criteria they used to calculate their ratings, smaller organizations down to families and individuals could learn tips about improving their own data protection.

Judging by online search results, squabbling about which data protection inspection seals are worthy may have already begun. There appears to be understandable concern that a company that produces consumer credit scores, which many Germans view with suspicion, also dipped its toe in the data protection certification business. Possible other models suggested for such an independent inspection system included the feared TÜV inspections and Biosiegel (“certified organic.” Bio means organic in German. Öko means treehugger.). An early boost was provided when a German state created demand for the certificate by requiring independent data-protection certification for products, programs and services used by state offices.

(DOT en shoots ZEEG ell.)

Lauter als die Hölle

Louder than hell. Motto of the annual festival that the village of Wacken says is the world’s largest open air heavy metal concert. According to this report, Wacken villagers let metal fans from around the world camp in their lawns and gardens, saying they enjoy the international visitors and good cheer and that the 80,000 headbangers behave well on the whole. Bringing new beer buddies to Schleswig-Holstein is also not a problem, probably not ever.

There’s a thoughtful Arte documentary on YouTube about backgrounds to the Wacken festival called “Brass Band Meets Heavy Metal.”

(L ow! terrr   alss   dee   HÖ lah.)

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