• English Site
• > Germany

'Money That Belongs to Us All'

Heads Roll in German Lending Bank Scandal

German ministers have announced three suspensions in the wake of a scandal at KfW, the government bank that inexplicably sent hundreds of millions of euros to Lehman Brothers as it went bankrupt on Monday.

Two managers and one division head of the German state lending bank KfW were suspended Thursday after an emergency meeting of the administrative board in Berlin, amid uproar over a suspicious €300 million ($426 million) transfer made by the bank to Lehman Brothers on Monday -- just as the New York financial institution collapsed.

Critics were calling for heads to roll, and during a press conference after the five-hour meeting German Economics Minister Michael Glos, a member of the conservative Christian Democrats, announced the three suspensions. His Social Democratic colleague Peer Steinbrück, Germany's finance minister, said the suspensions would not be "the final word."

KfW is a state lender which normally offers money to small and medium-sized German businesses -- not, as a rule, to failing Wall Street firms. Business leaders as well as German politicians sit on the administrative board.

But officials at KfW said the €300 million transaction belonged to a currency swap, an agreement to trade cash flows between the banks. The transfer was made on Monday, just after Lehman filed for bankruptcy protection, so KfW received nothing in the trade. But it was clear before Monday that Lehman was about to go under. The bank said it hoped to recoup at least 50 percent of the missing money.

The three suspended on Thursday included two managing directors, Detlef Leinberger and Peter Fleischer, as well as the head of the bank's risk-management department. As an investigation into the matter proceeds, Steinbrück said, the three were technically under suspension, but it was out of the question that they would return to their jobs.

Since KfW is backed with public funds, Glos said, it was urgent to clean the bank's stables. Government-owned KfW already came under fire earlier this year for its role in the multibillion, taxpayer-backed bailout of foundering German bank IKB earlier this year, which suffered staggering losses and had severe liquidity problems because of liabilities relating to the subprime credit crunch. After providing the bank with billions in guarantees, KfW oversaw its sale to an American equity firm for the bargain-basement price of $100 million.

"We have to do everything to prevent these incidents from happening again," said Glos. "One has to be careful with public money." He said the €300 million transferred to Lehman was not, in the end, "speculators' money which was burned, but money that belongs to us all."

msm -- with wire reports