'It Is Incomprehensible' Merkel Attacks Banker Bonuses

Chancellor Angela Merkel and other political leaders in Germany are piling criticism on banking executives for paying out large bonuses despite receiving billions of euros in state support in the financial crisis.

Chancellor Angela Merkel has not minced her words in criticizing banking executives: "It is incomprehensible that banks helped out by the state in many cases pay out huge sums in bonuses," she told SPIEGEL in the latest issue published on Monday. The subject will be addressed at the G-20 summit of leading economies in London in early April, she said. "Overall the bonus system must be linked to the truly sustainable success of the banks in an internationally more transparent way," Merkel said.

Deputy Chancellor Frank-Walter Steinmeier of the Social Democrats has been no less vocal. "I keep being shocked by the loss of any sense of reality and the cynicism of some leading executives," he said.

Other politicians have joined in the attacks on banking executives over the promised payment of €400 million ($515.92 million) in bonuses to the investment bankers of Dresdner Kleinwort Benson.

The money was pledged last summer by insurance group Allianz, which was the parent company of Dresdner at the time. Commerzbank has since taken over the bank and has questioned the payments. As part of a bailout partially aimed at keeping the acquisition of Dresdner from collapsing, the German government has taken a 25 percent stake in Commerzbank  and has invested a total of €18.2 billion in the bank.

"Greedy Bankers Sue to Get Millions in Bonuses," tabloid Bild newspaper wrote last week following the news that the bankers were considering taking legal action to protect their bonus payments. The article was accompanied by the photo of a smiling former head of Dresdner Kleinwort, Stefan Jentzsch.

Since then, however, Jentzsch has decided to forgo his bonus for 2008, a Dresdner spokesman told SPIEGEL ONLINE on Friday. The former CEO of Dresdner, Herbert Walter, has also forgone his bonus entitlement for 2008.

Some executives have also attacked the rules on bonus payments and the people who drafted them. "There clearly were excesses," Nikolaus von Bomhard, CEO of reinsurance giant Munich Re, told SPIEGEL. The high, short-term bonuses had helped fan the flames of the crisis, he added.

But given the dimensions of the credit crunch, one should also consider criticizing the supervisory board members and investors who set up the bonus system, said Bomhard.

He said the public criticism about the bonuses was "totally legitimate" and that he could understand why the government was considering putting caps on them.

Bomhard also said that in addition to the bonus system, the failures of risk management and a lack of personal responsibility by senior executives were further fundamental problems at the root of the crisis.

Separately, a government spokesman said on Monday that Merkel would prefer to avoid nationalizing troubled mortgage lender Hypo Real Estate, which has so far received €102 ($131 billion) in state aid, to help shore up financial markets.

Berlin is determined to prevent HRE from collapsing and would prefer to take a majority stake in the company rather than nationalizing it outright, government spokesman Ulrich Wilhelm told reporters.

Wilhelm said nationalizing the bank by expropriating its shareholders should be seen as a last resort if all other attempts to rescue the bank fail. The government is determined to shore up HRE because it is mindful of the chaos in the financial system caused by the collapse of Lehman Brothers last year.

Nationalization could damage Germany's image as a business location, analysts warned.

Editor's note: SPIEGEL ONLINE International will publish the current SPIEGEL cover story, "The Shameless: Billions in Bonuses for Bankers," as well as an interview with reinsurer Munich Re CEO Nikolaus von Bomhard, later this week.

cro -- with wire reports
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