| Klaus Landowsky | ||||||
If you’re desperately trying to pocket a bigger bonus than you know you deserve, do as the Gesellschaftler in Berlin did. Approve some dodgy credits (take some political donations on the way, too, if you are in the right party) reduce the risk provisions for the loans, then wait until profits amass in the next year, and voila – the bonus is yours to collect.
In the case of the Bank-gesellschaft management these bonuses amount to Dm8 million (e4.1 million), one million more than in 1999. And yes, this is the same Bankgesellschaft Berlin (BGB) that found a hole of Dm3.2 billion on its books last year. According to one Berlin newspaper two thirds of the Dm8 million were “success bonuses” paid to the top management. That probably refers to their success in keeping their jobs. The CEO Wolfgang Rupf was confirmed in office in July after getting the BGB into the biggest banking mess in Germany’s history.
Strangely, in February the bank had announced a good year-end result. But this was before the German regulator blocked the sale of the property services division IBG to a Cayman-based company.
More precisely, the sale involved only the decent assets of IBG and was to cover losses of Dm1.5 billion at the remaining IBG. (In German this process is nicely termed “to balance away losses”.)
In any case IBG adviser JP Morgan could not find enough investors, the deal fell apart, the regulator intervened as well, and found that risk provisions had to be revised upwards, and, on the occasion, a corruption scandal was uncovered that threw Berlin into a political crisis.
The reckless lending, particularly in real estate, at BGB’s mortgage bank Berlin Hyp and the Landesbank Berlin, had been going on for years. A vivid account of why it came to such excess was given by the chairman of the board at the Berlin Hyp, Klaus Landowsky, who had also been the leader of the faction of the Christian Democratic Union (CDU) in the city’s parliament. He stepped down in February when news broke that he had taken undeclared political campaign contributions of Dm40,000 from the developers (and ex-CDU politicians) whom he had given loans worth millions.
All in all the bank accumulated losses of Dm3.2 billion and only avoided liquidation because its majority owner, the federal state of Berlin, finds it impossible to let Berlin’s biggest bank and employer of 16,000 staff fail.
After a fruitless search for new investors, Berlin asked the European Commission for approval of a Dm4 billion rescue package, which was granted last month. Needless to say, the city won’t have money to spend on transport or its much-loved theatres. To add to its misery this comes before the city’s election – the Social Democrats had dissolved their 10-year coalition with the CDU in response to the Landowsky scandal. The approval rate of the two parties has fallen to a point where the main man from the Party of Democratic Socialsim is said to have a good chance of becoming mayor. He should include in his election campaign a note or two on the inefficiencies of state-intervention in the allocation of capital.
