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Berlin Suspends KfW Managers Over Banking Blunder

The German government's own bank, KfW, suspended two top executive officers from their duties Thursday after blunders that lost KfW 536 million euros in the Lehman Brothers failure.

A KfW sign

Two KfW executives may have to look start looking for new jobs after the bank lost millions

In the worst blunder, KfW deposited 350 million euros ($503 million) with Lehman on Monday, just hours before Lehmann declared itself insolvent, although the Lehman failure had been Sunday's top world news story. The sum was increased from the originally reported 300 million euros after taking changes in the dollar-euro exchange into account.

KfW, which holds government stock portfolios and makes soft loans to home-owners and students, suspended executive board members Detlef Leinberger and Peter Fleischer, said German Economics Minister Peter Glos.

Glos chairs the supervisory board of KfW, dubbed "Germany's dumbest bank" by the mass-circulation paper Bild on Thursday. A more junior manager was also suspended.

The two "board members responsible" at the KfW development bank were suspended with immediate effect until the incident is cleared up, Glos and German Finance Minister Peer Steinbrueck said in a joint statement.

KfW said earlier its exposure to the Lehman failure, including the unwise remittance and 186 million euros in credit, totaled 536 million euros.

The current global financial crisis has prompted Steinbrueck to summon finance and banking leaders to a Berlin summit next week, the business daily Financial Times Deutschland reported.

Lone Star sale approved

A person handing a bag with the IKB logo to anothe person

The KfW sold its stake in the IKB bank to US equity firm Lone Star

The supervisory board also approved the sale of a KfW subsidiary, IKB, to US private-equity investor Lone Star.

Under a contract negotiated in August, Lone Star is to pay 115 million euros for KfW's 90.8 percent of IKB.

In Germany's worst hit from the US sub-prime meltdown, IKB lost hundreds of millions of euros last year after investing in nearly worthless structured-finance paper secured with US home mortgages.

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