Herstatt Bank

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Former Herstatt Bank building (photo 2010)

The ID Herstatt KGaA was a Cologne private bank that of banker Ivan David Herstatt was founded and directed. In June 1974 it became insolvent due to foreign exchange speculation . Their collapse was the biggest bank failure in post-war German history at the time .

General

The "Bankhaus ID Herstatt KGaA" had the legal form of a partnership limited by shares , in which the eponymous Iwan David Herstatt as general partner and Hans Gerling were most recently involved with more than 84% as a limited partner . The bank had a full banking license and operated all banking in the form of a universal bank .

Company history

The Herstatt-Bank had a forerunner institute that could look back on more than 100 years of history.

Forerunner institute 1792–1888

The Herstatt family dynasty began in Cologne with Isaak Herstatt (* August 21, 1697 in Eschweiler , † April 28, 1761 in Cologne) application for a residence permit on March 21, 1727. The strictly Protestant Huguenot came from Valenciennes in Flanders . He and his descendants ran trading houses, especially with silk. Also the banking house I. D. Herstatt ( born January 29, 1743 in Cologne, † March 25, 1811) founded by the two subsequent brothers Johann David Herstatt (born October 13, 1740 in Cologne, † January 2, 1809 ibid) and Jakob Herstatt (born January 29, 1743 in Cologne, † March 25, 1811 ibid) ( Cologne, Hohe Pforte 25-27 ) emerged in 1782 from a silk and foil ribbon weaving mill, whereby the brothers gradually pushed back the silk business in favor of the commission and banking business due to the crisis. Johann David Herstatt continued to run the company from 1782 without his brother. As a banker is Johann David Herstatt first mentioned in the Council minutes of Cologne on 27 January 1792nd During the French occupation, the Herstatt Bank was involved in secularization of real estate together with the A. Schaafhausen'schen Bankverein . In 1796 it had equity capital of 100,000 Reichstalers, which had grown to 260,000 in 1810. It was not until 1815 that only banking business was carried out, in particular the exchange of goods and current account credit . Bank customers were the mining, iron processing and textile industries in the region. Since 1818 there has been a cooperation between the Herstatt Bank and the Cologne private banks J. H. Stein and A. Schaafhausen'scher Bankverein.

Herstatt-Bank - Hohe Pforte 25–27 / corner of Sternengasse (around 1900)

In the third generation, Friedrich Peter Herstatt (born September 25, 1775 in Cologne, † May 7, 1851 there) ran the banking business, who in 1798 became his brother-in-law Ludwig Gottfried von den Westen (* August 13, 1766, † September 1 1845 Cologne) and from 1837 Heinrich Ziegler took over. Together with the Cologne banks Stein , A. Schaafhausen and Sal. Oppenheim , Herstatt-Bank founded the Rheinschifffahrts-Assekuranz-Gesellschaft in 1818 , from which Agrippina-Versicherung emerged in 1845 . Friedrich Krupp had been a bank customer since 1834 at the latest , when the Herstatt Bank provided a current account credit of 8,000 thalers and rose to become the house bank. Also Felten & Guilleaume was among the bank's customers. The Herstatt Bank was also involved in the founding of the capital-intensive railways; it began in 1837 with the Rheinische Eisenbahn-Gesellschaft and continued with the Köln-Mindener Eisenbahn-Gesellschaft in 1841. When the Cologne Fire Insurance Company received its license on March 5, 1839 , it included Simon Oppenheim (Sal. Oppenheim), Heinrich Ziegler (Herstatt Bank), Wilhelm Ludwig Deichmann (partner in A. Schaafhausen) and two other Cologne bankers the founders. From it went Colonia insurance and today's AXA Insurance forth. In March 1843 Herstatt also helped found the first German reinsurance company , the Kölnische Rückversicherungs-Gesellschaft . Issuing activity for bonds is documented from 1849 , when the Herstatt Bank took part in a Cologne city bond; Share issues followed in 1856, such as that of Vulkan AG for iron and steel works and mining , but Herstatt seemed reluctant to issue larger issues, unlike the other Cologne private bankers. Son Johann David Herstatt (born May 28, 1805 in Cologne, † January 31, 1879 there) continued the banking business in the fourth generation and was President of the Cologne Chamber of Commerce from 1831 to 1879. His son Friedrich Johann David Herstatt (born September 29, 1831 in Cologne, † January 17, 1888 ibid) died early of pneumonia, his only son Johann David (born March 27, 1887 in Cologne, † November 4, 1955 ibid) was only almost 1 year old - the family chain of transmission to the oldest son no longer worked. In the absence of descendants, the ID Herstatt bank was taken over by the JH Stein bank on March 15, 1888 after more than 100 years of business activity and subsequently liquidated in the name of the Stein bank. This ended the existence of the ID Herstatt bank for the time being . Until 1888 it resided in a representative building at Hohe Pforte 25-27 / corner of Sternengasse , which was demolished in 1929.

Ivan David Herstatt

Iwan David Herstatt , who was born in Cologne, acquired the insignificant Cologne bank Hocker & Co. on June 2, 1955 (total assets: 52 million DM), which was for sale after the death of the owner Hans Hocker († April 22, 1954) and through 1938 " Aryanization " emerged from the Jewish banking house Sternfeld & Tiefenthal (founded in 1885). On December 10, 1955, the bank changed its name to “ID Herstatt KGaA”. Behind the legal form, which is rare for a bank, was Herstatt's childhood friend and insurance entrepreneur Hans Gerling , who made a contribution of DM 5 million as a limited partner (81.4%; the rest was held by subsidiaries of the Gerling Group) and Iwan David Herstatt as a personally liable partner . Over the years the Gerling Group increased its stake to 84.0273%.

In May 1957, the new banking house planned by architect Hanns Koerfer was opened in the banking mile Unter Sachsenhausen 6 (today: House of the Cologne Chamber of Commerce and Industry ) in downtown Cologne . The bank succeeds in establishing itself in the securities business and in gaining a large number of prominent Cologne residents as customers. Thanks to its expansive business policy, the bank is advancing from a purely regional bank to a national bank. This was also evident from the balance sheet total , which on December 31, 1959 was 249 million DM and at the end of 1962 had grown to 560 million DM. Through the accelerated foreign and foreign exchange business, the Herstatt Bank also gained increasing international importance in the early 1970s . In 1974 around 52,000 customers entrusted the bank with their money in 78,000 accounts and 15,000 custody accounts.

Foreign exchange speculation and the "golden boys"

Herstatt's expansive business policy led to rapid growth. In 1956 the balance sheet total was still 72 million DM, in 1958 it was 171 million, and finally rose to 2 billion DM by 1973. The number of employees grew from 15 (1955) to 850 (1971). But profits from the traditional banking business shrank.

The exchange rates resulting from the release of exchange rates on May 10, 1971, which no longer fluctuated within relatively narrow exchange rate ranges, but were almost entirely left to market developments by central banks , were identified as profit potential . Since the customer business was not sufficient for this, foreign exchange trading was mainly operated as proprietary trading . Other banks around the world also saw profit opportunities in this. The decisive factor in the foreign exchange speculation was the assessment of the future exchange rate development of the US dollar and other important currencies.

The era of freely fluctuating exchange rates (" floating ") began in March 1973. As a result, foreign exchange speculation intensified worldwide, and proprietary trading in foreign exchange (i.e. non-customer-driven business) became the core of Herstatt's banking business. Many other German and international banks also discovered the obviously lucrative business. At Herstatt, the so-called “gold boys” were responsible for these transactions: six currency traders who were just over 20 years old. The department was headed by Dany Dattel . The foreign exchange department worked largely without control, which was favored by the comparatively low supervisory regulations and by little contact with the other business areas.

The "gold boys" were only allowed to buy up to ten million dollars in foreign currency per person per day due to the bank's internal dealer limits . However, they circumvented this limit by using other bank employees who acted as front men . Since these employees were not able to deal with deadlines as private persons , they did not have to fulfill any obligation. In the event of a loss, these transactions would ultimately fall back on the bank.

Because of the then still unusual and futuristic-looking computer technology and the global communication networks, this area was named "Orion space station" based on the television series Raumpatrouille .

Collapse (1973/1974)

After the oil crisis from November 1973, the six traders expected a further increase in the US dollar, as was the case with other banks around the world. By mid-1973 foreign exchange trading had already reached a volume of 63.8 billion  DM . The increasing misjudgments of the development of the US dollar exchange rate led to losses which in mid-1973 clearly exceeded the liable equity capital of DM 77 million. For the balance sheet date December 31, 1973 an operating loss of 14 million DM was achieved during the last full fiscal year 1973, which was transformed by the profits from proprietary trading in foreign exchange of 48 million DM to a net profit of 34 million DM. There was an open net position from forward exchange transactions of 711 million DM, 23 times the liable equity.

At the beginning of the 1974 financial year, the situation of the bank deteriorated dramatically, as the open currency positions reached DM 8 billion, which would mean a profit or loss of DM 80 million if the exchange rate fluctuated by 1%. The end of 1973 had annual financial statements by the auditors an unqualified audit opinion received, according to which the financial statements was in line with the laws. A special report of March 11, 1974, taking into account foreign exchange and precious metal trading, came to the conclusion that, due to a substantial profit balance from these transactions at the end of 1973 and the settlements from January and February 1974, provisions for impending losses were not necessary and there were no indications for an "imbalance" would have been evident. The volume of open forward transactions, at 103 times equity, was meanwhile in no reasonable relation to equity. The reason was that the US dollar had been falling steadily since January 1974, while the dealers around Dattel had expected the rate to continue to rise. This meant that the foreign exchange closeouts had to be covered more expensively at the respective maturity than they had previously been acquired. On March 18, 1974, foreign exchange trading posted a loss of DM 250 million, which on June 16, 1974 had already grown to 470 million.

On June 11, 1974, Herstatt informed the limited partners that an internal bank audit on May 31, 1974 had shown a loss of around DM 64 million on currency forwards, which had consumed 89 percent of equity . On June 16, 1974, Herstatt and the general agent Graf von der Goltz informed the limited partners that the loss was between DM 450 and 520 million. On June 23, 1974, the Herstatt Supervisory Board and Gerling CFO Anton Weiler, the President of the Deutsche Bundesbank and the Chairman of the Presidium of the Supervisory Board of the Gerling Group discussed the question of a rescue of the Herstatt Bank. Further talks on June 26, 1974 with the major banks Deutsche Bank , Dresdner Bank and Commerzbank about a rescue of the Herstatt Bank ended unsuccessfully. On June 26, 1974, the Federal Supervisory Office withdrew the permission granted to the Herstatt Bank to conduct banking business ( banking license ) in accordance with Section 35 (2) No. 4 KWG; it ordered the company to be wound up and ordered it to close its counters and stop its payments immediately until further notice. On June 27, 1974, the bank applied for the opening of the settlement proceedings for over-indebtedness , because the losses amounted to 480 million DM. On that day, there were tumults in Cologne at the headquarters on Unter Sachsenhausen . The police had to secure the building, German share prices fell. On October 22, 1974, the Cologne District Court granted the application for settlement.

The comparison status showed that the bank's assets of around DM 1 billion were offset by debts of almost DM 2.2 billion. Almost half of these liabilities were deposits of non-banks . On Friday, December 13, 1974 , a dramatic creditors' meeting of 4,000 creditors took place in the Cologne sports hall . According to the bankruptcy law of the time, it was decided here whether the bank went bankrupt or a settlement was reached. That depended on whether the largest limited partner, Hans Gerling, was willing to increase the comparative mass with his own assets. If Gerling did not participate in payments for a settlement, the bank would go bankrupt, which probably left all creditors empty-handed. Gerling negotiated from home, Herstatt was absent because of illness. The television even reported live from the event, in which an agreement was only reached at the last minute because Hans Gerling then gave in. Under public pressure, Gerling had to sell 51% of its group and brought in 210 million DM in the comparison mass. This resulted in a settlement on December 17, 1974, which was confirmed by the court on December 30, 1974. From the mass to be distributed, creditors who were neither banks nor municipalities or municipal own companies should receive primarily 65%, the municipalities and their own companies 55%, foreign banks 55% and domestic banks 45% of their claims. The ruling limited partner, Gerling, was the chairman of the supervisory board and member of the board of directors and had interfered in the management of the KGaA, caused the managing director Herstatt to stand still and conducted the restructuring negotiations to the exclusion of the managing director himself.

creditor

The American Chase Manhattan Bank was Herstatt's most important correspondent and settlement bank for US dollars at the time , through which all accounts were processed in this currency. Chase Manhattan was very lucky back then. On the afternoon of June 26, 1974 at 4 p.m., the responsible foreign exchange trader from the Frankfurt branch of Chase Manhattan Bank learned of the impending collapse of the bank and immediately initiated the freezing of the New York custody holdings of 156 million US dollars. This enabled Chase Manhattan to avoid any losses while other banks had to wait a long time for the few remaining funds to be distributed.

Subsequently, it was possible to pay off most of the creditors from the remaining assets of the Herstatt Bank, a fire brigade fund of the German private banks and the assets of Herstatt and Gerling. Hans Gerling sold 51 percent of the shares in Gerling-Holding to a German industrial consortium (VHDI) and Deutsche Bank to satisfy the claims .

Private customers got back more than 80 percent of their deposits, savers with deposits below 20,000 DM 100 percent, banks and municipalities 65.4 percent. Among them was the city of Cologne with 190 million DM, the city of Bonn with 12.2 million DM and the Archdiocese of Cologne .

The last payments to the creditors could only be made at the end of 2006 due to the complex processing problems. Overall, banks and municipalities were satisfied with 73.5 percent of their claims and private and other creditors 83.5 percent.

Herstatt processes

As a result of the Herstatt settlement, there were a number of civil and criminal lawsuits, the most interesting of which were ultimately decided by the Federal Court of Justice (BGH). The first civil law process was decided by the BGH on July 9, 1979. The main issue here was whether those responsible were guilty of delaying bankruptcy . The BGH had denied this, so that the plaintiff Stadtsparkasse Köln were denied claims for damages.

In 1984 ID Herstatt was initially sentenced to four and a half years in prison. The BGH overturned this ruling, and Herstatt was sentenced in 1987 to a suspended sentence of two years for breach of trust; however, this sentence was waived in 1989. Six other managers were acquitted or received mild sentences, in the most severe case seven years' imprisonment was given. Dany Dattel was declared unable to stand trial because he suffered from what is known as the concentration camp syndrome (as a four-year-old he and his mother had spent a few months in the Auschwitz concentration camp ). For years, Dattel sued for money from foreign exchange transactions and 7,000 creditors were waiting for the remaining distributions of ten million euros. As long as these proceedings were not finally decided, the liquidation of the company could not be completed. The ID Herstatt KGaA was therefore in liquidation until the end of 2006.

The most sensation was a civil law action brought by the “Interest Group of Herstatt Savers” against the Federal Republic of Germany because of possible breaches of official duties by the Federal Banking Supervisory Office, the authority responsible for banking supervision at the time . The Federal Court of Justice recognized the possibility of violating commercial police obligations under the Banking Act and the possible liability of the Federal Republic.

Consequences

In the wake of the Herstatt bankruptcy , the German banks set up a deposit protection fund to protect their savers from the total loss of their deposits as a result of bank insolvency .

Due to the Herstatt decision of the Federal Court of Justice on official liability, the Banking Act was tightened and the previous regulation, according to which the banking supervision also acts in the public interest , was replaced by a regulation according to which the banking supervision only acts in the public interest. Due to this restriction, liability for breaches of official duties is excluded in the future. As a result, this means that this area is withdrawn from official liability protection. The same rule applies to insurance supervision ( Section 294 (8 ) VAG ) and stock exchange supervision.

Furthermore, the open (i.e. not closed out ) foreign exchange and precious metal positions were limited in percentage terms as early as August 1974 by being tied to the liable equity capital of a bank for the first time (by creating the new Principle Ia as an implementation provision for Section 10 KWG). In addition, in the wake of the Herstatt affair, the laws on filing deadlines for bankruptcy and settlement proceedings were tightened. The also newly created section 46b KWG requires prior notification to the banking supervisory authority if the credit institution plans to file for insolvency. The establishment of the liquidity consortium bank is also affected by this banking crisis.

Due to the closure of the bank and the ban on payments initiated by the Federal Banking Supervisory Office (today: BaFin ) , Herstatt received dollar payments, but was no longer allowed to provide the contractually agreed consideration . The closure of the Herstatt bank was the first and most spectacular case of a bank collapse, in which incomplete foreign exchange transactions led to serious problems in the payment and settlement systems. This risk, which exists in interbank trading , has since been called the Herstatt risk in banking . Since then, banks have tried to minimize or completely eliminate this settlement risk through bilateral or multilateral netting or the involvement of clearing houses such as CLS Bank International .

Others

See also

literature

  • Roland Dubischar: Trials that made history - ten sensational civil trials from 25 years of the Federal Republic . CH Beck, Munich 1997, ISBN 3-406-42559-3

Web links

Individual evidence

  1. ^ Sandra Zeumer, The Cologne Private Banks and Industrial Financing in the Early 19th Century , January 2003, p. 9
  2. ↑ Volker H. Peemöller / Stefan Hofmann, accounting scandals: delicts and countermeasures , 2005, p. 80
  3. ^ Sandra Zeumer: The Cologne private banks and industrial financing in the early 19th century . January 2003, p. 10
  4. ↑ Dieter Ziegler: Upper Citizen and Entrepreneur . 2000, p. 126.
  5. ^ Helmut Coing, Walter Wilhelm: Science and Codification of Private Law in the 19th Century. Fritz Thyssen Foundation, 1980, p. 67.
  6. ^ Alfred Krüger: The Cologne banking industry from the end of the 18th century. until 1875 . 1925, p. 44 ff.
  7. ^ Renate Schwärzel: German Economic Archives: Evidence of historical sources Volume 1 , 1994, p. 49.
  8. ^ Sandra Zeumer: The Cologne private banks and industrial financing in the early 19th century . January 2003, p. 55
  9. ^ Robert Steimel: JD Herstatt - The old and the new banking house , December 1963, p. 44.
  10. ↑ Ingo Köhler: The "Aryanization" of the private banks in the Third Reich , 2005, p. 357
  11. ↑ Robert Steimel: JD Herstatt - The old and the new banking house , December 1963, p. 54.
  12. ↑ Wolfgang Filc: Interest arbitrage and currency speculation , 1975, p. 13.
  13. ↑ Played, deceived, cheated . In: Der Spiegel . No. 13 , 1975 ( online ).
  14. ↑ Played, deceived, cheated . In: Der Spiegel . No. 15 , 1975 ( online ).
  15. ↑ Volker H. Peemöller, Stefan Hofmann: Accounting scandals: delicts and countermeasures , 2005, p. 81.
  16. ↑ a b c d BGH of July 9, 1979 (BGH NJW 1979, 1879 = WM 1979, 873)
  17. ↑ BGHZ , 75, 65
  18. ↑ Peter Jung : Entrepreneurial Shareholder as the Core of a Legal Society , 2002, p. 435.
  19. ↑ David Rockefeller: Memories of a World Banker . FinanzBook Verlag, 2008, p. 422 f.
  20. ↑ Kölnische Rundschau of August 9, 2006
  21. ^ BGH decision of November 3, 1989, Az .: 2 StR 646/88
  22. ↑ Herstatt Bank at last , Kölnische Rundschau from August 9, 2006.
  23. ↑ Lessons learned from the Herstatt bankruptcy , ZEIT of September 7, 2006.
  24. ↑ " BaFin only performs its tasks and powers in the public interest" ( Section 4 (4) FinDAG). On the one hand, this principle expresses the regulatory thought that there is no general state liability in favor of depositors; on the other hand, the focus exclusively on the public interest is an expression of the consideration that it is not the direct protection of depositors but the remedying of functional deficiencies in the banking market that is a state task .
  25. ↑ cf. u. a. LG Frankfurt NJW 2005, 1055.
  26. ↑ Bank for International Settlements , Quarterly Report December 2002 , p. 64