Police raid top public bank in Germany in junk-loans inquiry

Dec 7, 2009, 13:02 GMT

Stuttgart - Police raided the offices and homes of executives at Germany's biggest public bank on Monday, pursing an inquiry into how Landesbank Baden-Wuerttemberg (LBBW) invested in nearly worthless loans three years ago.

Prosecutors in Stuttgart said seven current or former management board members at LBBW were suspected of serious misappropriation of corporate funds.

Loss-making LBBW is the biggest of Germany's landesbanks, public institutions which are mainly controlled by the 16 German states. Several landesbanks have suffered catastropic losses from investing in low-grade US mortgages and related securities.

The raids to seize documents at the bank's Stuttgart head office and 10 homes were carried out by 240 police and prosecutors.

The suspects allegedly placed hundreds of millions of euros in high-risk deals or failed to stop such investments in or after 2006, although the market for so-called structured finance products was about to collapse, triggering a financial crisis and recession.

Sources told the German Press Agency dpa that the bank's current chief executive, Hans-Joerg Vetter, was not a suspect, but his immediate predecessor, Siegfried Jaschinski, was among those on the list.

An LBBW spokesman said, 'LBBW is fully supporting this inquiry so as to assist a rapid elucidation of what is true here.'

Stuttgart prosecutors launched an inquiry months ago into senior executives of the landesbank's real-estate arm, LBBW Immobilien GmbH, and said in August they had evidence against some executives. The inquiry widened last month to the parent bank.

In the first nine months of this year, LBBW posted a loss of 620 million euros (936 million dollars) because of risky loans.