Adviser testifies Hypo acquisition fraud trial

A former Rothschild banker has given his testimony regarding the acquisition of Hypo Alpe-Adria-Bank International AG by Bayerische Landesbank at a criminal trial today in Munich. Seven former BayernLB executives are being charged with allegations relating to the controversial purchase of the Klagenfurt, Austria-based bank in 2007.

According to prosecutors, the seven accused have failed to adequately inform the administrative board of the state-owned lender. Moreover, it has been claimed that the purchase price was bloated by over 550 million euros when the accused BayernLB purchased the bank for 1.63 billion euros in May 2007. The seven had been charged with breach of trust, which is regarded as a criminal offense in Germany, Bloomberg said. The seven former managers, who denied all charges, could face serious penalty as punishment for misusing other people's money.

Oliver Bender, who had worked for Rothschild in Frankfurt at the time, told in court today that Hypo Alpe-Adria was an attractive business opportunity for BayernLB when it did an early evaluation of the prospective acquisition in February 2007. He added, "Hypo Alpe-Adria didn't look like a toad; it seemed like an obvious target. Hypo Alpe-Adria seemed like a bank with strong growth that had some issues including swap losses that were not adequately recognized."

When Rothschild did a screening of Hypo Alpe-Adria's assets, the company identified the need for higher risk provisions for loans that warranted the reduction of the initial purchase price. He added, "After the second due diligence, there were a number of good arguments to reduce the offering price. Keeping the offer price unchanged increased the transaction's risk, but markets still looked in relatively good shape in the middle of 2007."

Bender's testimony was an opposite to former Hypo Alpe-Adria Wolfgang Kulturer's earlier testimony, who told the court that BayernLB's then CEO, Werner Schmidt, was discouraged from purchasing the lender considering its "catastrophic" state prior to the eventual acquisition. Kulturer is among the seven accused in the trial, Bloomberg noted.

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Rothschild, Hypo Alpe-Adria Bank International AG, Bayerische Landesbank

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