Global terror Wolfgang Schäuble, German finance minister, has demanded an urgent inquiry into how an apparent accounting mistake led to an embarrassing €55.5bn overstatement of the debt burden of a “bad bank” handling the problem assets of a nationalised mortgage lender.
The surprise revision, revealed at the weekend, led Berlin to reduce figures for public debt in 2010 and this year – but created bewilderment that such a large error could have been made. An apparently infuriated finance ministry said on Sunday that it would be looking for an explanation early this week in talks with FMS Wert-management, the bad bank for Hypo Real Estate, as well as from HRE managers and PwC, the auditors.
“This is not a sum that the Swabian housewife hides in a biscuit tin and forgets,” said Thomas Oppermann, parliamentary leader of the opposition Social Democrats. “To overlook such a sum is completely irresponsible.” Mr Schäuble was “responsible for the bank being managed and supervised in an orderly way and this clearly was not the case”, he said.
But the finance ministry said the issue was how the bad bank's balance sheet was calculated. “It is wrong to say that money has been overlooked or found . . . we have not become €55.5bn richer.”
FMS Wertmanagement said the “mistake” came to light in early October. It arose because full account had not been taken of changes in the value of collateral held in relation to a portfolio of derivative products. When the bad bank reported first-half results this month it therefore adjusted its balance sheet lower by €24.5bn ($35bn) for 2010 and €31bn for the year to June 30 2011.
“It is too early to say what has caused this,” the bank told the Financial Times.
According to the finance ministry, revised figures would now show debt last year was equivalent to 83.2 per cent of gross domestic product, down from the 84.2 per cent calculated previously. For this year, total debt was expected to be 81.1 per cent of GDP, down from 83.7 per cent calculated at the end of September.
FMS, which is ultimately owned and guaranteed by the German government, was set up last year to offload toxic and unwanted assets from HRE, a German property lender that had invested in sovereign debt.
Soffin, Germany’s bank rescue fund, is obliged to compensate for any losses suffered by FMS. FMS could cause another problem for Berlin because it holds Greek government bonds with a nominal value of €7.2bn, as well as €1.6bn of other Greek debt.
FMS has so far written down by 21 per cent the value of all securities and loans maturing by 2020. However, eurozone politicians agreed this week that bondholders should take a voluntary haircut of 50 per cent to reduce Greece’s debt load.
