Greensill bank collapse pits German government against lenders

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Hypo Real Estate, one of Germany’s biggest victims of the 2008 financial crisis, lost 75 million euros in the collapse of Greensill Bank, staging a bizarre battle as it tries to get the money back.

HRE was among depositors drawn by the relatively high interest rates offered by Greensill Bank, whose parent company, Greensill Capital, collapsed in March.

The Munich-based entity, which the German government was forced to take over, was one of the bank’s biggest depositors, according to people familiar with the matter, after allocating the funds in 2018.

German financial watchdog BaFin shut down Greensill Bank in March after a forensic audit uncovered potential balance sheet manipulations. The regulator subsequently filed a criminal complaint against the bank’s management, which is currently under investigation by the Bremen public prosecutor’s office.

The losses suffered by Greensill’s retail customers are covered by the German deposit insurance scheme, which has already paid them more than 2.8 billion euros. However, public sector institutions, as well as banks, are not protected by the program.

HRE said the insurance scheme, which is funded by the country’s banks and administered by the Association of German Banks, refused to compensate him, claiming it was a financial institution and therefore not covered .

Prior to its government bailout in 2008, HRE was one of Europe’s largest commercial real estate lenders. It was nationalized after a severe cash shortage at its Irish subsidiary, costing German taxpayers € 21 billion.

The best parts of HRE were finally listed in 2015 as Deutsche Pfandbriefbank, which is a member of the Association of German Banks. HRE no longer has any operational activities, but rather is a state-backed entity that focuses on collecting the lender’s unpaid debts and reducing losses for the German taxpayer.

Given its role, HRE declares that it is not a financial institution and is eligible for the insurance plan.

“From HRE’s point of view, the total deposits of 75 million euros are fully covered by the deposit insurance system,” HRE told the Financial Times, adding that she “was therefore awaiting compensation.”

“It’s a totally bizarre situation,” said a person familiar with the matter.

The collapse of Greensill Bank reverberated across Germany. In order to escape negative interest rates, dozens of municipalities together deposited up to 500 million euros in the bank. Many are considering legal action against the lender.

The German private banking sector will bear the cost of the collapse of the Greensill Bank, as it will have to fill the hole in the deposit system. Deutsche Bank said last month that it plans to contribute at least an additional € 240m by 2024, with around € 70m owed this year.

Greensill Capital, a supply chain finance company that depended on its German subsidiary for part of its funding, collapsed in March when insurers refused to renew coverage.

The Association of German Banks declined to comment.

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