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Business

BerlinHyp Loan Scandal Trial Begins

At a time when corruption-riddled German business is in the metaphorical dock, former employees of the city-owned BerlinHyp bank are in the literal version as a trial concerning dubious loans and property deals begins.

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The defendants will face a long and detailed examination of their actions

The trial of 13 managers of a city-controlled bank, including a prominent conservative politician, charged with fraud over some 240 million euros ($291 million) in questionable loans began on Friday in Berlin.

The defendants, including former leader of the Christian Democratic group in the city parliament Klaus Landowsky and 12 other former bank managers, are all current or former employees of BerlinHyp, a subsidiary of Bankgesellschaft Berlin which racked up huge losses after its foundation in 1994, mainly because of unusual property deals.

Scandal ended coalition rule, cost mayor his job

The scandal forced the Berlin government, itself deep in debt, to pump billions into the bank to prevent it from going bankrupt. It also helped push long-serving conservative mayor Eberhard Diepgen out of city hall and spilt the Social Democrat (SPD) / Christian Democratic Union (CDU) coalition in the city.

The beginning of the trial comes some four years after the investigation into dubious loans provided by the bank for Berlin real estate group Aubis first began. The investigation unearthed details of loans worth 240 million euros which BerlinHyp awarded to Aubis during the mid-1990s. Aubis used the money to acquire thousands of apartments in eastern Germany.

The nature of the loans was considered suspect, since the real estate business at the time was going through a major downturn with property prices dropping radically. The trial will attempt to ascertain why the defendants approved such massive loans at a time of high risk.

Suspect loans and donations under scrutiny

Bankenskandal Berlin Klaus-Rüdiger Landowsky

Klaus Landowsky

In addition to the dubious loans, the CDU parliamentary group in the Berlin city government, under the control of Landowsky, also received a donation of 40,000 deutsche marks (around 20,000 euros). Landowsky received the donation personally in cash.

The start of the trial was disrupted by protestors outside the court shouting slogans accusing the defendants inside of corruption and "looting the population." Others brandished black bags bearing the slogan "Your wealth is our poverty."

A verdict in the trial is not expected before early next year.

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