Sunday 26 February 2017

Now bank sues WestLB for 'fraud and wrongdoing'

Thomas Molloy

Thomas Molloy

ANGLO Irish Bank has filed a fraud claim against a German bank claiming the bank's incompetence led to higher losses than necessary.

The lawsuit pits a bank belonging to the Irish taxpayer against a bank belonging to the German taxpayer.

Anglo has joined an Israeli and an Arab bank in a lawsuit against WestLB to seek damages of more than $490m (€370m) after the German bank's investments in the US housing market led to billions in losses.

The banks filed the claims in New York and have accused the German regional bank of "fraud and other wrongdoings".

WestLB said yesterday that it regards the action as completely baseless. An attempt by the bank to have the case dismissed in June failed.

The case centres of two funds called Harrier and Kestrel, which were run by WestLB and in which Anglo invested during the early part of the decade.

The funds, which had credit lines worth €14bn, ran into difficulties when the credit crisis began this time three years ago.

The funds made their money by borrowing at low interest rates and investing in products giving higher interest rates.

The group accused WestLB of failing to sell assets quickly when the net asset value of the funds fell below 50pc which led to much larger losses for the investors. Anglo had 5pc of the funds.



Investors

WestLB say the banks were experienced investors who knew what they were doing.

WestLB resembles Anglo in some ways. Like the Irish bank, WestLB, which belongs to states, municipalities and local savings banks, was run by an adventure-loving executive who left the bank particularly vulnerable to the credit crisis

Nestled in the heart of the Rhineland far from London or New York, WestLB moved from being a small regional player to a bank with ambitions to be a global player.

Years of mismanagement and shoddy risk oversight led to billions in losses through risky deals which led to the departure of a raft of chief executives.

WestLB has since transferred €77bn in toxic assets to an off-balance-sheet "bad bank" in an effort to make the Dusseldorf-based lender stable, predictable and far less flashy than it has been in the past.

WestLB bought the old-school UK brokerage house Panmure in 1996 as part of an expansion into investment banking. It marked the start of a tradition of hiring star bankers and taking outsized bets, but also of falling down on risk management.

In 2007, WestLB traders lost €600m on a proprietary trading bet speculating on the price spread between Volkswagen preferred and ordinary shares.

And at the height of the credit crisis in 2008, WestLB's owners -- local savings banks and the state of North Rhine-Westphalia -- were forced to shoulder a €3bn rescue package after subprime-related assets began to crater in value.

Irish Independent

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