Regulator turns spotlight on WestLB board

WestLB, the German Landesbank, looks poised for a major management upheaval after Bafin, the German financial regulator, pressed the bank’s supervisory board to summon an extraordinary meeting in connection with the botched trades that occurred this year.

The supervisory board is expected to assess whether the bank’s board violated its duties to inform the supervisory board about positions and risks at a meeting in June 2006.

Rolf Gerlach, the chairman of the bank’s supervisory board, was pressed by Bafin to schedule the meeting for this Thursday.

WestLB’s equity propriety desk, which invests the bank’s own money in the stock market, incurred the losses this year after speculating in shares of Volkswagen and BMW, the German carmakers, and Metro, the retailer. Two traders were dismissed, with WestLB saying they had breached internal rules and the country’s securities laws.

Bafin, the German financial regulator, is investigating the case and is expected to report on it in August, but the supervisory board meeting was triggered by a statement by KPMG, the auditor that was appointed by Bafin to look into the trading activities.

KPMG had found “something that was so serious, the meeting had to take place at short notice”, a person familiar with the situation told FT Deutschland, the FT’s sister paper.

People familiar with the situation did not rule out Tuesday that the scandal could cost Thomas Fischer, WestLB’s chief executive, his job. The board members Mathijes van den Adel and Hans-Jürgen Niehaus are said to be other potential candidates to leave the bank in the wake of the scandal.

The departure of one or several board members could lead to a management crisis similar to the one that occurred in 2003.

Both Bafin and WestLB declined to comment.

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