In the Red: WestLB Announces Huge Losses as Investigation Launches
A day after prosecutors announced they were investigating the bank's former management board, troubled WestLB has reported huge losses resulting from the high-risk speculative trading at the heart of the probe.
WestLB reported Thursday huge losses in the first half of 2007, a day after an investigation into the former management board was announced.
The troubled state-backed German bank WestLB reported enormous losses Thursday, a day after public prosecutors announced they were launching an investigation into the bank's top management.
The bank lost a total of 604 million due to misguided speculation in the first half of 2007. However profits in other areas of proprietary trading meant that the overall loss in the trading division could be limited to 309 million, the bank said.
The poor results come one day after an investigation was launched into top WestLB executives. A spokesman for prosecutors in Düsseldorf said Wednesday that an investigation had begun into seven current and former WestLB executives, including ex-chief executive Thomas Fischer, who stepped down last month after pressure was put on him to resign. Two former traders from the bank are also under investigation. WestLB said Wednesday it wanted the case cleared up as quickly as possible.
The seven executives, who previously comprised the entire management board under Fischer, are suspected of violating German corporate law in connection with massive losses incurred in speculative transactions earlier this year. The executives are accused of not fulfilling their obligation to provide adequate information to the supervisory board about the full extent and riskiness of the trades, which involved speculating on changes in the share prices of companies such as BMW, Volkswagen and the retail giant Metro.
An investigation by Germany's financial services regulator BaFin had earlier revealed that the executive board had known about and tolerated risky trading practices since the beginning of 2007, according to media reports.
With an eye to saving jobs in Düsseldorf, state governor Jürgen Rüttgers has proposed a merger between WestLB and the Stadtsparkasse Düsseldorf savings bank, which would give WestLB direct access to private customers. The savings banks are opposed to this idea, wanting to keep the consumer banking business for themselves. In an interview with the German news agency DPA Wednesday, Rüttgers demanded that the savings banks come up with an alternative business model for WestLB. A decision is likely to be made by Sept. 10.
The crisis at WestLB, which was also one of several German banks affected by the recent US subprime mortage crisis, increases pressure for a wave of consolidation among German state-owned banks -- something that WestLB itself appears to view as inevitable. "We will play an active role in the planned strategic realignment of WestLB as part of the consolidation of the German (state-owned banks)," Alexander Stuhlmann, chairman of the managing board of WestLB, said in a statement Thursday.
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