German Bank Defends Loans to Fugitive It Accuses of Fraud

Facing a crisis of confidence, Germany’s largest bank defended itself Monday against charges that it acted blindly in lending more than $700 million to fugitive real estate mogul Juergen Schneider.

Deutsche Bank chief executive Hilmar Kopper said his financial institution was the victim of a “systematically prepared and executed fraud” in which Schneider possibly had help.

Kopper conceded that the bank made mistakes that could cost it hundreds of millions of dollars, but he offered assurances that the thousands of Schneider employees and subcontractors will be paid money owed them.

“There can be no doubt about the standing of Deutsche Bank or the German banking system as a whole. There is no cause whatsoever for a crisis of confidence,” Kopper said at a news conference in Frankfurt.

Schneider was one of the country’s biggest, flashiest real estate tycoons, with about 80 fancy projects nationwide. He and his wife, Claudia, vanished earlier this month owing about $3 billion to 40 banks and $150 million more in unpaid bills.

The couple had sole control over their companies’ accounts and apparently took tens of millions of dollars with them. Media speculation on their whereabouts ranges from Florida to Iran.

Deutsche Bank, Schneider’s biggest creditor, has filed a lawsuit against the Schneiders, accusing them of having secured their loans with false documents. But the media have criticized financial institutions--Deutsche Bank, in particular--for repeatedly making bad loans to big business.

In many cases, the banks serve on supervisory boards of businesses to which they lend. In January, 120 banks had to bail out the Metallgesellschaft metals and engineering group for $2 billion after it ran up a debt of about $5.5 billion. Deutsche Bank was also the biggest creditor there and a board member.

In Schneider’s case, it has been reported that the banks may have relaxed tight lending criteria to allow him to borrow up to 90% of a project’s value. The banks continued lending to him despite his reputation for delinquency with his suppliers.

German media have noted repeatedly that Deutsche Bank received a goodby letter from Schneider on April 7 but sat on the news for days without notifying police or taking other action.

The weekly newsmagazine Der Spiegel summed up much of the critical national and international media coverage of the banks with a short line in its six-page story: “Poor Deutsche Bank.” The magazine quoted the Frankfurt Public Prosecutor’s office as saying that even after filing suit, the bank withheld relevant files in the case.

But Kopper said that the bank’s “gravest error was that we let ourselves be duped.” He added that no bank employees will be fired or made scapegoats.