Bank chief criticises Depfa business plan

DEUTSCHE BANK chairman Josef Ackermann has said Hypo Real Estate (HRE) operated a “faulty” business model with “inadequate” management of liquidity at its Dublin subsidiary, Depfa.

He told a parliamentary inquiry yesterday that the near collapse of the group last September would have had “serious consequences not just for Germany, but for Ireland and the entire euro zone”.

Last September, Mr Ackermann led German banks in talks with the federal government to provide the stricken group with €35 billion in loans and guarantees, a figure that later ballooned to more than €102 billion.

German opposition parties have set up a parliamentary inquiry into the matter, accusing the government of ignoring early warnings about HRE’s business model until the collapse of US bank Lehman Brothers in September triggered a near-meltdown of financial markets.

Mr Ackermann defended the government yesterday, saying there was no alternative to a bailout and that no one could have predicted the consequences of the Lehman collapse, namely a crisis in market confidence that caused inter-bank lending to dry up. That crisis left Depfa unable to do business, refinancing long-term financing of capital projects with short-term loans.

“Until , financial regulators around the world always thought that a solvent bank is a liquid bank: as long as there is enough capital, they will always be able to refinance themselves,” said Mr Ackermann, adding that HRE appeared to be a healthy company last year with a capital quota of 8 per cent and pretax profits of €200 million.

The crisis had changed the rules, he said, while the bailout had brought to light sloppy oversight at the bank.

Liquidity was so poorly managed, according to Mr Ackermann, that HRE managers were unable to say in September just how much money they needed to stay afloat.

At the request of the Bundesbank, Deutsche Bank auditors went to HRE in Munich and Depfa in Dublin.

They discovered the real liquidity hole was more than €50 billion.