2 Min Read
BERLIN (Reuters) - Two board members of German state lender KfW have been suspended over the transfer of 300 million euros to Lehman Brothers LEH.N LEHMQ.PK on the day the U.S. investment bank filed for bankruptcy protection, German Economy Minister Michael Glos said on Thursday.
Glos, speaking to reporters after presiding over a meeting of KfW's supervisory board in Berlin, said the two casualties were Peter Fleischer and Detlef Leinberger.
"In this extremely difficult current situation, a mistake was made that cannot be pardoned," Glos said, adding that the decision to suspend the pair was "right and necessary."
A more junior manager in the bank had also been suspended, Glos said.
The case has made front-page news in Germany, with the mass-circulation Bild daily calling KfW "Germany's dumbest bank." Glos is chairman of KfW's board of supervisory directors and Finance Minister Peer Steinbrueck is deputy chairman.
"The risk control mechanism in the bank was not adequate," Steinbrueck said on Thursday after the meeting. Efforts would be made to improve controls and the board should present concrete proposals as soon as possible, he added.
KfW KFW.UL said on Tuesday it mistakenly transferred the funds to Lehman on Monday to unwind a swap agreement, in which two counterparties agree to exchange one stream of cashflow against another stream.
Sources said the German lender's total exposure to Lehman was 536 million euros ($778 million). That included the 300 million euros, which due to currency fluctuations is now worth 350 million euros, they added.
KfW has already taken a hit from liquidity lines given to business lender IKB IKBG.DE, the country's biggest casualty of the subprime crisis.
KfW's supervisory board had approved the sale of IKB to Lone Star, Glos said on Thursday.
Reporting by Markus Wacket and Angelika Stricker, writing by Iain Rogers and Michael Shields; Editing by Bernard Orr