No sooner has Ireland Inc begun to shed its crisis sackcloth than the ghost of banking crises past drifts in from Germany. A decade after Saxony's state-owned lender Sachsen LB was ruined by Dublin-based subsidiaries, the drama is finally going to have its day in court.
Sachsen LB's former deputy head Hans-Jürgen Klump has been charged with incorrect representation of the 2004 accounts, the last before the banking crisis hit. The key to the case lies in Ormond Quay.
That was the name of the main off-balance construction used by the Saxon banking group to generate massive profits with complicated US property speculation. A subsequent investigation suggested the profits it generated were so massive the German owners neither understood nor cared where they came from.
So dependent was the German parent on its Irish subsidiary that, when the bubble burst, Ormond Quay dragged the German lender to the brink. It was only rescued by another German state lender, LBBW in Stuttgart.
The case, pencilled in for September at Leipzig district court, should cast a light on the world of Irish light-touch banking regulation.
It may also settle one of the last outstanding issues in the competing German and Irish crisis narratives: the blame.
Was it the Irish regulator’s fault for allowing structures like Ormond Quay to play fast and loose under its nose with adventurous business models? Or did the blame lie with owners such as Sachsen LB for not questioning why their Dublin-based geese laid so many golden eggs?
The question of legal liability is already clear: to allow Ormond Quay to borrow at competitive rates, the state-owned Saxon bank issued a letter of comfort, promising to cover all loses of its Irish subsidiary – about €3 billion by the end. Why this letter of comfort was not flagged in the 2004 accounts will be a key point of the case against Mr Klump.
Even 10 years on, the banking drama is far from over for Saxon taxpayers. So far they have stumped up €1.16 billion to cover Ormond Quay losses and total liability could yet rise to €2.75 billion.
