Ex-IKB chief faces charges

Germany could soon be witnessing its first trial related to the financial crisis, after prosecutors charged Stefan Ortseifen, the former chief executive of stricken lender IKB.

Prosecutors in the city of Düsseldorf said in a statement that they had charged Mr Ortseifen – who led the mid-sized corporate lender until it became one of the first victims of the worldwide financial crisis in the summer of 2007 – with manipulating the share price and breach of trust.

Mr Ortseifen downplayed the impact of the financial crisis on the bank “in a misleading fashion” in a press release in July 2007, Düsseldorf prosecutor Michael Marx-Manthey alleged.

He said the press release was “too positive” and caused investors to buy the stock, supporting the share price just one week before the bank came close to insolvency.

Rainer Hamm, Mr Ortseifen’s lawyer, did not respond to several requests for comment.

IKB ran into trouble at the onset of the US mortgage crisis two years ago, when it revealed it could no longer provide liquidity to an off-balance sheet conduit.

The lender subsequently had to be bailed out by the German government and was eventually sold off to US-based private equity firm Lone Star.

IKB has recently applied for a further €7bn in state guarantees, after earlier receiving loans and guarantees worth €8bn. The new application has yet to be approved by the German government.

The prosecutors also charged Mr Ortseifen, who left the bank in August 2007 and lives reclusively in a Düsseldorf suburb, with breach of trust.

They alleged he spent €120,000 on the renovation of a house that the bank owned, but in which he lived.

The prosecutors also alleged he bought “high-end loudspeakers” with money from the bank.

These latest allegations have added a surprising dimension to the story of the failure of a once well-respected mid-size lender. Given its highly conservative image, the near breakdown of the bank came as a huge shock to the German public.

IKB used to be a cautious lender to the many small and medium-sized Mittelstand companies that form Germany’s industrial backbone.

But unnoticed by the public, the bank in recent years had used an off-balance sheet vehicle to rapidly buy up US mortgage debt.

The prosecutors decided not to charge Mr Ortseifen and other former management board managers for breach of trust concerning those investments.

“Their decision to invest in these markets was led by the high profits they made for many years here and they didn’t think the risks were fatal,” the prosecutors said.

The prosecutors told the FT that a starting date for the trial had not yet been decided.