Bayerische Landesbank’s managers didn’t mislead its administrative board over the acquisition of Hypo Alpe-Adria Bank International AG, the former chairman of the board told a Munich court.
“The information given by the management board to us was precise and comprehensive,” Kurt Faltlhauser, who headed BayernLB’s administrative board from October 1998 to June 1999 and from July 2002 until July 2005, said in testimony today. “I wasn’t misled.”
Former BayernLB executives are on trial over the takeover that led to 3.7 billion euros ($5.1 billion) of losses. Prosecutors allege they didn’t inform the state-owned lender’s administrative board correctly and overpaid by 550 million euros when they purchased a majority stake of Klagenfurt, Austria-based Hypo Alpe-Adria for 1.63 billion euros in May 2007. They are charged with “breach of trust,” a criminal offense in Germany that punishes misuse of other people’s money. All of them deny the charges.
“The due diligence didn’t reveal any deal-breakers,” Faltlhauser said. “The risks were assessed during the due diligence. We had more than 800 risk managers at BayernLB at the time, there were plenty of experts available. The process was well-structured and not chaotic, as suggested by media reports.”
In the case, the first in Germany to put management board members on trial for overpaying for an acquisition, prosecutors allege the executives at state-owned BayernLB rushed the deal. They didn’t properly assess the risks and didn’t include precautions in the agreement because they were under political pressure to buy Hypo Alpe-Adria after they lost the bidding for Vienna-based Bawag PSK Bank in 2006.
“Following BayernLB’s failed bid for Bawag, I never said that BayernLB’s management was too stupid to buy a bank,” Faltlhauser said, referring to a claim by prosecutors, who argue that accusation put pressure on BayernLB’s managers to act. “It was a complex situation back then.”
In the wake of the financial crisis, BayernLB’s acquisition of Hypo Alpe-Adria a year later turned into a disaster, causing the losses at BayernLB until 2009, when the unit was sold to the Austrian government for one euro. The losses have triggered litigation between the two banks and probes in both countries.
BayernLB’s administrative board is comparable to a supervisory board at listed companies in Germany. Under Germany’s two-tier system, the management board is responsible for day-to-day operations while the supervisory board oversees the management board.
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