10/28/2008 04:28 PM

Outrage and Shame

Will Germans Get their Iceland Deposits Back?


Thousands of German customers of Kaupthing Bank, the Icelandic financial institution threatened with bankruptcy, may lose their savings. They seem to have been forgotten by Berlin and Reykjavik.

Jürgen Wasem is an expert when it comes to financial issues -- at least in his professional life. The 49-year-old health economist at western Germany's University of Duisburg-Essen is a member of the council of advisors to the German government on the country's public health insurance system. Most recently, he helped negotiate the fees paid to doctors by Germany's public health insurance companies. Large parts of the new federal health fund are based on the calculations made by Wasem and his researchers.

Iceland's Kaupthing bank: customer service numbers for its German interenet banking subsidiary are dead and e-mails go unanswered.

Iceland's Kaupthing bank: customer service numbers for its German interenet banking subsidiary are dead and e-mails go unanswered.

When it comes to his personal finances, however, Wasem is faring far worse these days. Overnight, Wasem lost about half of his total savings, though he won't say exactly how great that sum is. It shouldn't have happened. Wasem had parked his assets in what he thought were highly conservative and secure direct access savings accounts.

Wasem is among those who recently watched their money burn in Iceland, a country whose banks have become household names as a result of the financial crisis -- Glitnir, Straumur, Landsbanki. The Kaupthing Edge Bank subsidiary also did big business in Germany, and around 30,000 Germans had deposited their money there, until the bank suddenly suspended operations two weeks ago.

"It is not possible to access your account right now," the company's Web site has stated since then. E-mails to the company also go unanswered. The customer service hotline is dead. And Germans with money in those accounts are stuck on a never-ending emotional roller coaster ride, not knowing whether to panic or just feel embarrassed.

Initially, people maintained the hope that the German government would step in and take action. Both the Netherlands and Britain, for example, provided loans to the Icelandic government so that their own nationals who had deposits with banks in Reykjavik, including Kaupthing's Icesave subsidiary, would be covered. Three weeks ago, German Chancellor Angela Merkel declared that no German who had put their savings in a bank operating in Germany should have to fear the loss of their money. German Finance Minister Peer Steinbrück also stated: "An Icelandic bank with branches or a subsidiary in Germany will be shielded under the plans we have." That, at least, is what he was saying on Oct. 13. Indeed, a video clip of his statement has become quite popular on the Internet.

But now the government seems to know nothing about the guarantees it said it would provide to Germans who put their savings into Icelandic banks. Steinbrück recently stated that people must have misinterpreted his words. He said it was an issue for Iceland and the International Monetary Fund to come up with a solution for the problem of international depositors. He also said there were currently no bilateral negotiations taking place between Germany and Iceland.

This is has only served to further anger depositors in Germany. The chance that they will ever see their money again seems to be diminishing by the day. In contrast to comparable subsidiaries of other foreign banks doing business in Germany, like Holland's ING-Diba or Cortal Consors, a subsidiary of France's BNP Paribas, Kaupthing Edge was not a member of Germany's depositor's guarantee fund.

Instead, Kaupthing Edge relies on Iceland's own deposit guarantee scheme. According to that system, the best case scenario foresees customers getting back €20,887. That is far from enough to cover all the losses incurred by German depositors.

A 49-year-old cameraman from Berlin, for example set aside an €80,000 nest egg for his retirement in an Icelandic account. One prominent German journalist is also concerned about a six-figure deposit that he earned years ago with his first bestseller and that he unfortunately invested in Iceland a few months back.

Like everyone else who put his money into Kaupthing, the journalist thought he was playing it safe. This wasn't, after all, an investment in some highly speculative stock.

Currently, around €300 million in German deposits are at risk -- similar to the grave situation facing those securities sold by German financial institutions and savings and loans that were rendered worthless by the bankruptcy of Lehman Brothers.

The suffering caused by Kaupthing's collapse has actually brought people together from all walks of life. A spokesperson for Germany's Federal Office of Consumer Protection is just as worried about his deposits as an unemployed woman in the western state of Hesse, who up until now had been paying her rent and other regular bills with her Icelandic savings account. For many, the most upsetting thing has been that they are publicly portrayed as gamblers and greedy. How on earth, asks Kaupthing victim Wasem, could one consider a savings account that paid interest of 5.65 percent to be a speculative investment? Besides, the bank got the same monitoring by German financial authorities that is the standard by all financial institutions doing business in the country.

Just weeks before its collapse, German consumer protection agencies were still describing Kaupthing Edge Bank as a potentially interesting place for people to place their savings. Of course, it advised the cautious investors should not place more money in their accounts than guaranteed under Iceland's deposit insurance scheme.

Some consumers are now feeling they've been fleeced. In addition to the pain and fear, there is also a modicum of shame -- especially in an atmosphere where even members of Chancellor Angela Merkel's cabinet are already scoffing at the allegedly greed-driven small investors. In the Finance Ministry, the word is that every small investor has to be aware that higher interest rates also come with higher risks. And Federal Economics Minister Michael Glos said that, to him, it was "incomprehensible" that "tens of thousands of people could transfer their money to a small bank in Iceland."

Of course, Glos, of Bavaria's ruling conservative Christian Social Union party, appears to have forgotten the fact that his own state's government-owned Bayerische Landesbank itself frittered away €800 million in Iceland.


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