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15th May 2022

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Greensill Bank collapse pits German government against lenders

Hypo Real Estate, one of the biggest German casualties of the 2008 financial crisis, has lost €75m in the collapse of Greensill Bank, setting up a bizarre battle as it tries to recover the money.

HRE was among the depositors attracted by the relatively high interest rates offered by Greensill Bank, whose parent company, Greensill Capital, collapsed in March.

The Munich-based entity, which the German government was forced to take over, was one of the largest depositors at the bank, according to people familiar with the matter, after allocating the funds in 2018.

German financial watchdog BaFin shut down Greensill Bank in March after a forensic audit uncovered potential balance sheet manipulations. The regulator subsequently filed a criminal complaint against the bank’s management, which is now under investigation by Bremen public prosecutors.

Losses suffered by Greensill’s retail customers are covered by Germany’s deposit insurance scheme, which has already paid out more than €2.8bn to them. However, public sector institutions, as well as banks, are not protected by the programme.

HRE said that the insurance scheme, which is funded by the country’s banks and administered by the Association of German Banks, was refusing to compensate it, claiming that it was a financial institution and therefore not covered.

Before its government rescue in 2008, HRE was one of Europe’s biggest commercial property lenders. It was nationalised after a serious liquidity squeeze at its Irish subsidiary, costing German taxpayers €21bn.

The better parts of HRE were eventually listed in 2015 as Deutsche Pfandbriefbank, which is a member of the Association of German Banks. HRE no longer has any operating businesses, but is instead a state-backed entity focused on recovering the lender’s outstanding claims and reducing losses for the German taxpayer.

Given its role, HRE says it not a financial institution and is eligible for the insurance scheme.

“From HRE’s point of view, the total deposits of €75m are fully covered by the deposit insurance scheme,” HRE told the Financial Times, adding that it was therefore “expecting compensation”.

“This is a totally bizarre situation,” said one person familiar with the matter.

The collapse of Greensill Bank has reverberated across Germany. In an effort to escape negative interest rates, dozens of municipalities had together deposited up to €500m in the bank. Many are considering legal steps against the lender.

Germany’s private banking sector will bear the cost of Greensill Bank’s collapse, as it will have to fill the hole blown in the deposit scheme. Deutsche Bank said last month that it was expecting to contribute at least a further €240m by 2024, with about €70m due this year.

Greensill Capital, a supply chain finance company that relied on its German subsidiary for some of its funding, collapsed in March when insurers refused to renew cover.

The Association of German Banks declined to comment.

2021-05-10 03:00:14


www.ft.com


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