HSH Nordbank’s Dr. No Didn’t Do Bankster Rap, Judge SaysNicholas Brautlecht
Former HSH Nordbank AG Chief Executive Officer Dirk Jens Nonnenmacher, known as “Dr. No,” and five other ex-board members were acquitted of charges related to a 2.4 billion-euro ($3.3 billion) investment that soured during the financial crisis.
Nonnenmacher, the ex-chief executive officer, and the other men were cleared by a Hamburg court today after more than 60 days of hearings. Prosecutors had sought suspended prison terms of as long as 22 months, arguing that the men’s actions led to losses of about 50 million euros.
“At no time was there a suspicion that the accused acted like gangsters, or as they say ‘bankster-like,’ laying their hands on the money entrusted in them to their own, direct advantage,” Presiding Judge Marc Tully said after delivering the verdict today.
The former HSH bank managers approved a collateralized debt obligation deal with BNP Paribas SA at the end of 2007, which allowed the German lender to transfer risky loans to a special purpose vehicle called Omega 55. Losses from the transaction were among the factors that pushed the bank to seek a bail out two years later.
Nonnenmacher and the other ex-executives did indeed violate their duties when signing off the deal, as they relied on a memo that “only insufficiently informed them about the chances and risks” of the transaction, Tully said.
“A relief of risk-weighted assets did objectively not take place,” Tully said. “The whole transaction was objectively useless.” Nevertheless, the breach of duty wasn’t “grave” enough for a conviction.
The judge shared the view voiced by experts during the trial that the high loss was caused by the financial crisis between 2008 and 2010, which the defendants couldn’t foresee at the time of the Omega 55 decision. The court estimated the loss at “about 30 million euros,” he said.
The deal was designed to allow the lender, which is owned by the states of Hamburg and Schleswig-Holstein, to lower its capital needs and to stabilize its credit rating -- steps deemed crucial for a planned initial public offering, which was later scrapped.
Hamburg prosecutors are examining the verdict and will decide whether to appeal within a week, spokesman Carsten Rinio said by phone.
The case “demanded a lot of strength and nerve from participants” over a long period, Heinz Wagner, Nonnenmacher’s attorney, told reporters after the verdict. “I hope that the prosecutors do not file an appeal.”
Nonnenmacher was given the nickname of Dr. No by the media because of his Ph.D.
Prosecutors throughout Germany have investigated lenders that faltered during the financial crisis. Most of the troubled lenders are Landesbanken, which are owned by German states and savings banks. The Landesbanken received a combined 97.3 billion euros in state aid and guarantees during the global financial crisis, according to company and Bloomberg data.
At the height of the financial crisis in 2009, Hamburg-based HSH Nordbank was bailed out with 30 billion euros in aid from German state and federal governments.
HSH Nordbank will continue to seek damages from three of the six former board members in separate arbitration proceedings, the lender said in a statement. HSH Nordbank will sue the remaining three ex-executives should today’s acquittal be overturned on appeal and the men be convicted in a new trial.