Anger at last-minute loss in Lehman crash (Roundup)

Sep 17, 2008, 11:25 GMT

Berlin - Berlin demanded an inquiry Wednesday into why Germany's federal-government bank KfW handed over a reported 300 million euros (420 million dollars) to Lehman Brothers, only hours before the US bank failed.

Financial sources said KfW could only hope to recover about half the sum, with Lehman expected to pay 40 to 50 cents in the dollar to its creditors as it is wound up.

Other sources told Deutsche Presse-Agentur dpa that the bank board would ask KfW chief executive Ulrich Schroeder at a meeting Thursday to explain the blunder. Lehman's impending crash had been world news all Sunday.

The newspaper Frankfurt Allgemeine Zeitung reported the size of the payment, saying KfW passed the money to Lehman as part of a swap arrangement on Monday, the day that the US firm declared insolvency.

The Finance Ministry in Berlin, which controls KfW, said there would be an inquiry to find who was to blame. KfW's in-house auditors would study how it was possible for the payment to have been released.

KfW conceded that it had an exposure of hundreds of millions of euros from the insolvency after the 'improperly released payment,' according to the newspaper.

KfW was set up as a reconstruction bank and handles most federal-government investments.

The newspaper Handelsblatt said the Lehman crash could also prompt the biggest payout in the history of the German banking industry's deposit guarantee fund.

Lehman's German subsidiary had been a member of the mutual-aid arrangement, in which banks jointly guarantee the safety of customers' deposits.