Merkel invited to testify over bailout

GERMAN OPPOSITION parties are calling for Chancellor Angela Merkel to appear before a parliamentary committee investigating last September’s rescue of property lender Hypo Real Estate (HRE).

The call came as investors announced a €200 million lawsuit against the Munich-based bank, claiming former managers hid the true nature of risks at its Dublin-based subsidiary, Depfa.

It was bailed out last September after it could no longer find short-term liquidity on international markets to finance its long-term credit to government capital projects. In a late-night meeting, German banks and the federal government agreed to a package of loans and guarantees worth €35 billion.

After that figure ballooned to over €100 billion, Berlin launched a nationalisation of the bank.

The final deal last September was negotiated on the telephone by Deutsche Bank chief Josef Ackermann and Dr Merkel, prompting a call by the Green Party to invite the German leader as a witness.

It is an invitation Dr Merkel will do her best to decline: two months before the general election, she is anxious to distance herself from the increasingly expensive, politically damaging shadow of Hypo Real Estate. However danger may be approaching on another front if a class-action lawsuit is launched as expected in Munich next Thursday.

The suit, filed on behalf of 200 HRE shareholders, claims that they were deceived about the bank’s health by former chief executive Georg Funke. They are particularly critical of his announcement last January that the bank would have to write down assets worth over €390 million, causing a 35 per cent drop in the share price.

Two months earlier, Mr Funke had said HRE would emerge from the crisis stronger than ever.

Heading the compensation claim is lawyer Andreas Tilp, already responsible for a shareholder case against Deutsche Telekom. “We believe there was a clear, continuous breach of shareholder law from July 2007 to October 2008,” Mr Tilp said.

Six cases have been filed in Munich courts against HRE, while another four have been dismissed. Any settlement could be expensive for the German taxpayer and damaging for the government. After agreeing over €102 billion in loans and guarantees, Berlin has almost completed its takeover of the bank.