Executive board of German bank all on trial for fraud

James Bond’s first big screen nemesis, Dr No, never got his day in court after Sean Connery left him boiling in a cooling vat. Half a century on, however, Dirk Jens Nonnenmacher – dubbed Dr No in German finance circles – went on trial yesterday accused of massive fraud at the state-owned bank he once headed.

With five other former executives, Dr Nonnenmacher (50) is accused of breach of fiduciary trust as well as accounting fraud at the regional leader HSH Nordbank, necessitating a taxpayer-funded bailout worth €13 billion in capital and guarantees.

The trial, the first time the entire executive board of a German bank has gone on trial together, promises insights into the culture that prevailed at Germany’s state-owned Landesbank sector.

Almost all of these public banks were involved in speculative deals that went drastically wrong in the financial crisis – at massive cost to the German taxpayer.

Despite stiff competition from fellow Landesbanks West LB and Bayern LB, the Hamburg-based HSH saga is particularly dramatic, with allegations of secret surveillance, blackmail and a special purpose vehicle with a name worthy of a spy thriller: Omega 55.

Agreed with BNP Paribas in late 2007, in the early days of the financial crisis, Omega 55 allowed the Hamburg-based bank to transfer to the special purpose vehicle any risky loans on its books.

The deal, co-ordinated by HSH’s London office, was intended to polish up the bank’s balance sheet and secure a positive grade from ratings agencies ahead of a possible flotation. But investigative journalists revealed Omega as a circular transaction: offloading risks from the balance sheet and accepting others instead.

Prosecutors contend that in exchange for selling risky real estate asset-backed loans to BNP Paribas, HSH agreed to buy structured securities issued by, among others, Iceland and Lehman Brothers – among the first and biggest victims of the financial crisis.

State bailout
On its first day alone, the deal reportedly cost HSH Nordbank and its state owners some €62 million, rising to €500 million and forcing the bank into a state bailout. Only part of the deal – the sale of assets to the French bank – was registered with the German financial regulator, Bafin.

Dr Nonnenmacher, the former chief executive, denies the charges. Asked about the allegations over Omega 55 while still heading the bank, Dr Nonnenmacher insisted he knew nothing about the risks and merely voted in favour of a deal formulated by others.

He has denied all knowledge of other allegations that he organised the surveillance of board members by private security companies.