Getting Off Lightly: Bankers Stonewall Investigators in Crisis Probes

By SPIEGEL Staff

The investigation into public bank BayernLB highlights the problems the German justice system faces in tackling the shortcomings that led to the financial crisis. Investigators are overwhelmed, and managers and supervisors have formed a wall of silence.

Banking headquarters in Frankfurt -- investigators are encountering a conspiracy of silence in their bid to probe the financial crisis. Zoom
AP

Banking headquarters in Frankfurt -- investigators are encountering a conspiracy of silence in their bid to probe the financial crisis.

It was shortly after 8.30 a.m. last Wednesday when the employees of Bayerische Landesbank (BayernLB), a publicly-owned German regional bank, received an unexpected visit. Many had just poured their first cup of coffee when about 50 police officers and prosecutors marched into the bank's legal department, where they presented a search warrant issued by the Munich district court. Then they proceeded to the executive suite on the sixth floor, where CEO Michael Kemmer has his office.

At the same time, authorities were searching offices and private residences in Austria, Luxembourg and at Ammersee Lake near Munich, where Kemmer's predecessor Werner Schmidt has been living since he was forced to resign.

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Photo Gallery: The Pitfalls of Probing the Financial Crisis
The investigators accuse the former CEO of having paid more than €300 million ($447 million) too much for the Austrian banking group Hypo Group Alpe Adria (HGAA), which BayernLB acquired in the summer of 2007. Complete nonsense, says Schmidt, who argues that all relevant boards had approved the deal, and that there was nothing wrong with it. "I can only recommend," says Schmidt, "examining all of the relevant executive board and supervisory board records."

The move against Munich-based BayernLB is the most recent in a series of investigations with which German criminal prosecutors are seeking to shed light on the dubious business dealings of German financial institutions in the course of the financial crisis. The unusual business practices pursued at Landesbanken, or state-owned regional banks, has been a particular focus of their investigations.

No Convictions of Bankers in Germany

Hundreds of investigators throughout Germany are currently digging through thick stacks of files, studying contracts and minutes, and interviewing managers, executives and consultants. Their goal is to find out who is responsible for wiping out €160 billion in assets in Germany alone during the financial crisis.

While US authorities have a penchant for taking away "banksters" in handcuffs, on live television, their German counterparts are making little headway as they investigate the players in the financial crisis. There have been a few spectacular raids at institutions like the KfW state development bank and mortgage lender Hypo Real Estate, as well as former executives at Sachsen LB, but with meager results. There have been no arrests or convictions.

It could very well stay that way. Even in Germany's banking capital Frankfurt, none of the complaints filed with the public prosecutor's office has triggered "serious investigations," says Senior Prosecutor Doris Möller-Scheu.

These meager results offend many Germans' sense of justice. While the world continues to groan under the weight of the financial crisis, financial professionals are collecting hefty bonuses once again, as if nothing had happened. Around the world, very few in the industry have even been held accountable.

As the Wall Street Journal reported last week, the 23 leading financial institutions on Wall Street expect to pay their employees about $140 billion in salaries and bonuses this year -- even more than in 2007, a record year for payouts in the industry. In Frankfurt, banker Jens-Peter Neumann collected a €3 million bonus and a €1.5 million settlement from Commerzbank, even though his division lost billions in the crisis.

The international financial elite, it appears, can not only expect to receive vast sums of taxpayer money in the form of bailouts, but it also seems to have the courts on its side. This makes it all the more appalling to Germans when they see ordinary citizens losing their jobs over something as minor as eating a meatball from a conference buffet.

Sense of Injustice

Even politicians are troubled by this disparity between justice and morality. "A destruction of capital in breach of one's duty is a criminal offence," says Christian Wulff, the governor of the German state of Lower Saxony. Chancellor Angela Merkel also believes that those responsible for the loss of billions in Germany should be brought to account.

But outgoing Justice Minister Brigitte Zypries, a member of the center-left Social Democratic Party (SPD), has turned down all calls for a tightening of criminal law when it comes to the financial industry. Federal Prosecutor General Monika Harms also believes that there is no need to amend German criminal law. Both argue that current laws offer enough scope to prosecute misconduct related to the financial crisis.

This may be true in theory, but the reality is a different story. The criminal authorities lack the necessary expertise and staff, while the financial industry is known for its ability to muster armies of lawyers. Besides, it is very difficult to come up with the necessary evidence of intentional misconduct, and the few cases that are heard in court often end in backroom compromises.

The shortcomings in the oldest German case related to the financial crisis, the near-bankruptcy of the Düsseldorf-based lender IKB Deutsche Industriebank, are particularly glaring. Months before the government launched its general bank bailout program, the institution, in which the German state-owned development bank KfW was a major shareholder, already required €9 billion in government funds.

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