The Fall of Leo Kirch

Early last year, Erwin Huber, chief of staff to Bavarian Prime Minister Edmund Stoiber, placed a phone call to top management at Munich-based HypoVereinsbank, Germany's second-largest publicly traded bank. The subject was Formula One auto racing. But Huber wasn't calling to discuss the previous weekend's winners and losers. He was encouraging HVB to help finance Munich media mogul Leo Kirch's acquisition of Formula One broadcasting rights. Kirch is one of Bavaria's largest employers, not to mention a big supporter of the German state's conservative politicians. Although Huber later denied trying to pressure HVB, he admitted telling a member of the bank's management board that Formula One was of "significant economic importance" to Bavaria's media industry.

Still, HVB balked. The bank had already fronted Kirch $400 million, and his pay-TV unit was racking up multibillion-dollar losses. In most free-market economies, the matter might have ended there. But this being Bavaria, there was another option: Bayerische Landesbank, a lending institution 50% owned by the state government and overseen largely by Stoiber's aides. In short order, the Landesbank lent Kirch some $1 billion--in effect, staking taxpayer money on a venture that local banks considered too risky. "It can only be political influence," says Peter Paul Gantzer, a center-left member of the Bavarian parliament who is critical of the government's dealings with Kirch.