Ex-CEO Says Hypo Alpe ‘Catastrophic’ Before BayernLB Bought It

Hypo Alpe-Adria-Bank International AG was in a “catastrophic” state before Bayerische Landesbank acquired it, Hypo Alpe’s convicted ex-chief executive officer said at a trial of top BayernLB managers facing charges for their roles in the takeover.

“The bank’s situation in mid-2006 was catastrophic to say the least,” Wolfgang Kulterer, 60, ex-CEO and supervisory board chairman of Hypo Alpe told a court in Munich today. BayernLB’s then CEO Werner Schmidt was “discouraged by that” from investing in the lender at a meeting at the time because of its difficult situation following undisclosed losses on swaps, Kulterer said.

Schmidt is among seven former BayernLB executives on trial over the purchase of Austria’s Hypo Alpe one year later. The acquisition led to 3.7 billion euros ($5.1 billion) of losses at the Munich-based bank when Hypo Alpe was nationalized by Austria to avert its collapse in 2009.

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 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.

Kulterer learned about BayernLB’s interest in buying Hypo Alpe at a meeting with Schmidt, Tilo Berlin and others in Munich at the end of January 2007, said Kulterer, who was sentenced to a total of 6 1/2 years in jail in three court cases in Austria dealing with his role in the Hypo Alpe’s near-failure.

Before that meeting, BayernLB had lost the bidding for Vienna-based Bawag PSK Bank, a defeat that prosecutors argue let executives rush the deal to buy Hypo Alpe without properly assessing risks.

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