GERMAN FINANCE minister Wolfgang Schäuble has said “statistical and communication problems” were to blame for a €55.5 billion error in the accounts of nationalised property lender Hypo Real Estate (HRE) and its related bad bank.
Faced with the largest accounting error in German business history, Mr Schäuble held a meeting yesterday with top executives of HRE, nationalised in 2009, and the FMS Wertmanagement, established last year as a bad bank for toxic HRE assets.
Afterwards, Mr Schäuble said he was satisfied that the mistake, overstating balance sheet debt by €55.5 billion, would not occur again. As a result he said he would not demand resignations at the state-owned institutions but instead asked the Bundesbank to carry out a thorough examination of the two companies’ accounts.
“It’s an annoying mistake,” said Mr Schäuble. “Even if the matter is cleared up and has nothing to do with public liabilities, the damage to public trust remains.”
The finance ministry denied that correcting the error meant Germany was €55.5 billion richer, but conceded it had reduced the federal debt by 2.6 per cent in absolute terms, relative to GDP.
The ministry says the multibillion error occurred as a result of a misunderstanding between HRE and FMS over whose job it was to offset particular postings relating to collateral on a derivatives portfolio. HRE thought it was FMS’s job, while FMS assumed the figures from HRE had already been offset. The underlying cause, Mr Schäuble said, were different accounting practices at various banks acquired and merged in the HRE group.
Neither HRE nor FMS has accepted responsibility and continue to blame each other.
Mr Schäuble denied yesterday his ministry had known about the error for several months, or tried to keep the matter quiet. He conceded that his ministry had been concerned about financial data from HRE/FMS for some time. The finance ministry was informed in general terms a month ago, he said, while he was informed in detail for the first time on October 13th.
FMS Wertmanagement was founded a year ago as the bad bank for HRE, nationalised in October 2009 as a belated victim of the Lehman Brothers collapse. In September 2008, the German federal government and German private banks were forced to make loans and guarantees worth more than €100 billion available to HRE after its Dublin-based subsidiary Depfa experienced severe liquidity problems in the wake of the Lehmans collapse.
Opposition politicians in Germany attacked yesterday’s explanation as a “continuation of the cover-up”.
“It cannot be the case that nobody is responsible for a €55.5 billion error,” said Thomas Opperman of the Social Democrats.
