Transparency issues

The disgruntled shareholders, according to a report in the Sueddeutsche Zeitung newspaper on Wednesday, claim that the German lender withheld information on investment risks.

The complaint, which the paper reports will be presented to the regional court in Munich, could be supported by thousands of investors, and legal experts believe that the revelations of suppressed data could lead to an increase in compensation in the region of "several hundred million euros".

Since HRE was recently put under state control, the federal government would be liable to pay any compensation.

Meanwhile, Deutsche Bank chief Josef Ackermann has defended the government bailout of HRE, saying there had been no alternative. He was questioned by a parliamentary committee over whether Berlin had bungled the rescue.

Deutsche Bank chief defends bailout

Ackermann told a parliamentary fact-finding commission in Berlin on Tuesday that a collapse of HRE in the fall of 2008 would have led to chaos both on German and international financial markets.

He stressed that there had been no alternative to the government bailout as the country's banks would have been unable to save the troubled lender without the help from Berlin.

The Deutsche Bank chief on Tuesday was facing questions from a parliamentary committee looking into the Finance Ministry's handling of the 100-billion-euro bailout of HRE. Ackermann at the time was heading a group of private banks that eventually alongside the government shouldered a small part of the massive bailout of HRE.

The committee's aim is to find out if the government, in its expensive rescue of the troubled bank, made mistakes that significantly increased the bailout's price tag. It will also try to ascertain what lessons can be learned for the future.

While Ackermann stressed that Berlin's help was crucial for saving HRE, he did however criticize the government for dragging its feet over the rescue. He said it had been "one minute to 12" meaning that any more hesitation to bail out the lender would have led to a dramatic collapse of HRE. Ackermann said it was a direct phone call between him and Chancellor Merkel that achieved the breakthrough in negotiations.

Three German opposition parties, the Green Party, the liberal Free Democrats (FDP) and the Left Party have been highly critical of the government's handling of the crisis when it appeared that Hypo Real Estate was going to fail.

Following Ackermann's testimony both the opposition and government claimed that the Deutsche Bank chief had backed up their position.

Volker Wissing of the FDP said Ackermann's statements had confirmed that Berlin had been completely unprepared for the HRE crisis.

The government however claimed that Ackermann's statements proved that the situation had been of utmost urgency and that therefore the billions of euros in government bailout had been more than justified.

Teetering giant

Hypo Real Estate is a pivotal part of Germany's economy. In addition to its real-estate activities, the bank plays a central role in issuing "Pfandbriefe," bonds in which small investors, savings banks and insurance companies have placed large amounts of money.

In September 2008, the bank found itself caught in the vortex created by the failure of American bank Lehman Brothers. Those shock waves were felt in Dublin where the Depfa bank, an HRE subsidiary, found it could no longer secure short-term liquidity to cover its long-term business. Depfa's problems threatened to drag its German parent down with it.

According to minutes of a meeting held in late September, Deutsche Bank CEO Josef Ackermann claimed that Depfa's liquidity problems were bringing the entire German banking system within a hair's breadth of collapse. The meeting was between private banks and the government over who would pay for the bailout of HRE/Depfa.

The federal government picked up the bill, saving the teetering financial institution with an injection of 102 billion euros ($143 billion) in state aid. The government now owns 90 percent of the bank and Berlin plans to acquire the remaining 10 percent.

In mid-August, the committee is scheduled to question German Finance Minister Peer Steinbrueck.

nda/ai/jam/Reuters/dpa/AP/AFP

Editor: Neil King