German public funds placed €100 million with Lehman Brothers

Germany's public pension and insurance funds placed some €100 million in failed US investment bank Lehman Brothers, the government said on Thursday.

German public funds placed €100 million with Lehman Brothers
Photo: DPA

One of the 16 pension carriers apparently invested €44.5 million in the bank’s German subsidiary with time deposits of various denominations with the now defunct Lehman Brothers bank. Meanwhile an insurance fund that covers work accidents and illness placed €57.55 million, a written response sent by the government to the liberal party FDP’s parliamentary group said.

“In the financial crisis, not just the banks, but also the social security funds failed,” liberal Free Democratic party MEP Frank Schäffler told the daily Bild in response to the statement. “They urgently need to improve their risk management too.”

The letter noted that Lehman Brothers’ German subsidiary is not officially bankrupt, and that deposits by public funds were guaranteed by another fund created by a federation of private banks.

In all, the government estimated that German banks had committed between €1 and €5 billion with Lehman Brothers.

The US investment bank declared bankruptcy on September 15, the same day that KfW, the German state-owned development bank, transferred more than €300 million to it.

That transaction is under investigation.


US investors buy up north German state bank hit by financial crisis

Two German states said Wednesday they would sell troubled maritime lender HSH Nordbank in the first full privatisation of one of the regionally-owned "Landesbank" lenders hit badly by the financial crisis.

US investors buy up north German state bank hit by financial crisis
Photo: DPA

Leaders from Hamburg and Schleswig-Holstein states said at a news conference they would sell their 95-percent stake for one billion euros to investors led by two US funds, J. Christopher Flowers and Cerberus capital.

The European Commission ordered a change of ownership in exchange for its approval in 2009 of a €13-billion-euro rescue – one of two taxpayer-funded bailouts for the north German bank since the 2007-2008 financial crisis.

That rescue plan helped cover risky investments amounting to €60 billion, most of them in real estate and the shipping sector, which HSH built up in the pre-crisis years.

“Today we've reached an important milestone on the way to selling the states' holdings in HSH,” which had over the years proved “very costly to the taxpayer,” Schleswig-Holstein state premier Daniel Günther said.

Wednesday's deal must still earn a green light in a further competition probe by the Commission and from banking supervisors at the European Central Bank.

If it goes ahead, “the privatisation means that we can limit the damage to the states that has resulted from the bank's irresponsible strategy of expansion between 2003 and 2008,” Hamburg mayor and future federal finance minister Olaf Scholz said.

The sale was immediately criticized by Sahra Wagenknecht, leader of Die Linke (the Left Party), who described it as a gift to “the finance mafia.”

“Future profits will be privatized, tax payers will lose multiple billion euros and jobs are at risk – whoever calls that a success doesn't deserve to be finance minister,” she wrote on Twitter.

Hamburg and Schleswig-Holstein have taken on a portfolio of HSH's bad loans, meaning taxpayers could face a bill of up to €7 billion when they are eventually sold to private buyers.

The contract for Wednesday's sale also provides for HSH's payroll to be halved, to around 1,000 workers.

HSH's departure into the private sector leaves just five of the “Landesbank” lenders standing after a series of post-crisis interventions.