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German prosecutors unveil raid on state-owned KfW bank
2008-10-22
FRANKFURT (AFP) - Frankfurt prosecutors said Wednesday they had searched the Frankfurt offices of German state-owned KfW bank in connection with a payment to a bankrupt US bank last month. The raid stemmed from a KfW payment in September of 319 million euros (407 million dollars) to insolvent US investment bank Lehman Brothers, the prosector's office said in a statement. It was carried out with agents from the federal criminal police unit BKA and aimed to determine if directors were responsible for "not preventing the payment on September 15 despite their knowledge of liquidity problems at Lehman Brothers within the context of the financial crisis," the statement said. KfW has fired three directors involved with the error, which made the German development bank a laughing stock in financial circles. "We are investigating all board members who held functions when the transfer was made on September 15," a prosecutor's spokeswoman said. KfW's new board chairman Ulrich Schroeder has held the post since early September but is thus also subject to the probe of the government's financial arm. Schroeder succeeded Igrid Matthaeus-Maier, who was forced to step down in April owing to poor managment of a precarious situation at the business lender IKB, in which KfW holds a dominant stake. In a separate statement, KfW reaffirmed its readiness to "cooperate in an intensive way" with the prosecutor's investigation. "KfW will provide all the information and all documents requested by the prosecutor's office," it added. IKB, a specialist in lending to small- and medium-sized enterprises flirted with bankruptcy and was saved only by massive injections of fresh funds, mainly by the state through KfW, which lost billions in the meantime. The payment to Lehman Brothers meanwhile, was made as part of a liquidity exchange operation agreed before the US investment bank declared bankruptcy. Prosecutors noted that they had already launched a probe of KfW directors on suspicion of breach of trust. KfW had said the payment resulted from "an error in the evaluation of the risk of Lehman Brothers insolvency by the service involved." The state-owned bank had already been hit hard by the US financial crisis as a result of a major holding in IKB. It had invested heavily in securities backed by risky US mortgages on which borrowers defaulted in large numbers. KfW's stake in IKB was finally sold to an investment fund for a fraction of its initial value to the US investment fund Lone Star.
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