“We only see the tip of the iceberg”

Berlin State aid against the economic consequences of the corona crisis apparently also releases criminal energy: A 31-year-old entrepreneur was arrested on Thursday on suspicion of subsidy fraud. He faces up to five years in prison.

As Chief Prosecutor Thomas Fels, head of the department responsible for money laundering at the Berlin public prosecutor’s office, reported, the man applied for help from various cleaning companies totaling 80,000 euros. From this sum, he was paid 35,000 euros. It was only later that it emerged that some companies for which the aid was requested did not even exist.

Since the beginning of April, the Berlin public prosecutor has been investigating a total of 46 cases against 55 suspects for subsidy fraud. In addition, more than 100 cases are now pending at the Berlin State Criminal Police Office. A total loss of 700,000 euros is currently assumed. “We only see the tip of the iceberg here,” said the Berlin Chief Prosecutor Nina Thom, head of the Asset Recovery Department.

Not an isolated case

The deed of the 31-year-old is not an isolated case. In Berlin, fraudsters managed to get aid for companies that didn’t exist at all. This raises questions about security checks from the Investitionsbank Berlin, which pays the aid.

“Obviously, in some cases there was no plausibility check,” said the chief criminal director of the Berlin State Criminal Police Office, Jochen Sindberg. However, there was great political pressure to quickly help the self-employed and small businesses. In order to remain liquid, companies with up to five employees can receive € 9,000, companies with up to ten employees can receive € 15,000.

In some cases, the LKA received information from banks about strange account movements. In one case, an account was opened, the only purpose of which was obvious to book the Corona help. “We have made the Central Office for Financial Transaction Investigations (FIU) aware of these transactions,” said Sindberg. Banks would have to report suspicious account movements to the FIU.

Overall, the head of the Berlin Investment Bank considers the fraud rate to be marginal given the 200,000 applications. “The majority of companies are open and honest,” said Jürgen Allerkamp at his institute’s press conference for the financial statements.

Fraud cases also in other federal states

This also includes the 2500 companies that have paid back their aid. Obviously, they only realized afterwards that they were not part of the funding group. The repayments have so far amounted to more than 15 million euros.

The situation was different for a young lady who described herself as an Instagram influencer: she had no intention of repaying the help she received, although research by the police showed that she had a well-stocked account and had no liquidity concerns. The Berlin public prosecutor’s office consistently pursues cases of this kind. “We are vigorously after those who, in our eyes, behave in a socially harmful way,” said Sindberg

Not only the state of Berlin has to deal with fraudsters. First, the state of North Rhine-Westphalia (NRW) reported attempts to defraud Corona help with fake websites. The fraudsters tried to lure applicants to their fake page in order to illegally tap public aid on their behalf – but with their own bank details. Aid payments had to be temporarily suspended. Other federal states also reported attempted fraud, but indicated higher security standards.


ECB is working on a bad bank

In the corona crisis, governments and banks and their supervisors do everything they can to enable companies to survive: States take on financial guarantees, partially relax the conditions for lending and reduce the requirements for banks to back up their risks with equity. But what will be the consequences in the medium term?

Andrea Enria, the Chairman of the Supervisory Board of the European Central Bank (ECB), also faces this question. He works on the concept of a so-called bad bank: it could later take on bad loans and thus relieve the commercial banks of accrued risks. The Financial Times had first reported this.

As can be heard from financial crises, the project is at a very early stage. The Commission of the European Union (EU) apparently has relatively little choice. The EU, which would be responsible for implementing such a concept, is not currently working on it. However, a spokesman said: “If it becomes necessary to expand our range of instruments, we will examine all possibilities.”

Enria had already made a similar proposal in 2017 – but in a different context. At that time he was still the head of European banking supervision (Eba). The idea was not very well received.

German supervisory authorities were already critical of plans for such a settlement bank (bad bank) at that time – and little has changed. Because it would benefit institutions in southern Europe significantly more than money houses in northern Europe.

In addition, as in the debate on euro bonds, the question would arise who pays for the financial burdens, it is said in German finance circles. It would also have to be clarified whether the construction would be considered state aid by the EU Commission.

Early discussion

It is legitimate to think about preventive measures in the course of the corona crisis to prevent problems with banks, say people familiar with the topic. But there are a number of critical questions in the debate about a bad bank that need to be dealt with in detail. One question is why the problem of bad loans should be tackled right now – and not only at a later point in time when it is clear how big the burden of Corona will be in different industries and regions.

So-called non-performing loans (NPLs), i.e. loans with slow interest payments or repayments, have been a problem for domestic financial institutions in Greece and Italy in recent years. In both countries, however, the number of these bad loans has been significantly reduced. The sale to risk-tolerant investors such as hedge funds made a significant contribution to this.

These investors took out the loans at reduced prices, hoping for future profits. For the banks, this was nevertheless associated with fewer losses than if they had written off the positions in their balance sheets completely. With the advent of the corona crisis, however, investors’ willingness to take the risks of such loan purchases has decreased significantly.

At the same time, banks are under real pressure to be generous in lending. Although the financial system appears to have been stable so far, a feared rise in the feared NPLs can be expected in all countries.

Memory of the financial crisis

Settlement banks have been created by governments in many countries since the financial crisis, which peaked in 2008. In Germany, for example, the collapse of what was then Hypo Real Estate (HRE) was prevented with billions of euros. State participation in the Commerzbank stems from this crisis. In the USA, ways were also created to shift risks from the banks to the state budget – unlike in Germany, the state actually did a business with it.

After the crisis, politicians and supervisors wanted to prevent taxpayers’ money from being used again to save banks. There were also fears that the possibility of government risk-taking would lead the banks to recklessness – the moral hazard problem is well known.

Therefore, the Single Resolution Mechanism (SRM) was created in the EU. It is intended to make it possible to wind up individual banks and to ask their shareholders and in some cases creditors to pay without causing panic in the financial system or requiring the use of state money.

It is not certain whether this mechanism would cope with an increase in various problems in the banking sector – it has not yet been tried and tested. In addition, the problem of assuming risk is very different today than before and in the financial crisis: Now banks are expressly encouraged to take risks.

More: Why a bad bank is a good concept


Applications for KfW loans are skyrocketing

The state development bank KfW

KfW loans amounting to EUR 20.8 billion had been applied for by Tuesday evening.

(Photo: dpa)

Frankfurt Corporations’ applications for corona relief loans to the KfW state development bank are skyrocketing. KfW loans totaling EUR 20.8 billion had been applied for by Tuesday evening – an increase of almost EUR 8.8 billion compared to the previous day, as KfW announced on Wednesday.

The main reason for the strong increase are twelve large applications for over 100 million euros, the total volume of which now amounts to 17.2 (previous day: 12.1) billion euros.

The tourism group TUI announced on Wednesday that it had signed a contract with KfW for a bridging loan of EUR 1.8 billion.


The corona crisis poses new dangers for the banks

Lehman Brothers headquarters in New York

The US bank Lehman Brothers went bankrupt in mid-September 2008 and accelerated the financial crisis, which hit the banking world hard.

(Photo: dpa)

How dangerous is the corona crisis for the banks? Of course, this question cannot really be answered at the moment, but a comparison with the financial crisis of 2008 can provide first indications of what the industry is facing. First of all, the most important difference: Back then, the banks triggered the crisis, and today they are victims. At that time, the shock hit the institutes directly and with full force, today the financial institutions are more at the end of the chain of damage.

However, this does not mean that the corona crisis is less dangerous. Many European and German banks have still not found a robust business model a decade after the Lehman shock. The institutes may be much better capitalized, but there is often still a huge lack of profitability. The corona crisis will relentlessly expose these weaknesses, even if the damage to the balance sheets will probably be more of an erosion than a landslide.

The epicenter of the quake in the financial crisis was investment banking. Highly complex derivatives, which had generated lavish profits over the years, rapidly lost value and turned out to be insidious time bombs that exploded like a chain reaction. One bank after another was in need of existence.

This time the risk is more in the credit books. Companies will get into trouble and will no longer repay their loans, consumers will lose their jobs and will no longer be able to service their loans.

Investment banking, on the other hand, should at least temporarily be one of the winners of the crisis. There is an ice age in the business of takeovers and IPOs. However, trade is flourishing in almost all markets, for which the violent price fluctuations are a clear sign. And trading in securities is the main source of revenue for the investment banking departments of the big banks.

This also means that this time, those banks that were considered to be rock solid in the financial crisis could get to the center of the storm: institutes that earn their money primarily from companies and private customers.

More: China’s central bank frees billions for lending


The run on emergency aid continues

Emergency aid

The amount of emergency aid depends on the size of the company.

(Photo: dpa)

Berlin The run on the Corona instant grants continues. By Friday noon, at least 1.4 million applications for emergency Corona had been received in all federal states. Around 520,000 of these have already been approved and grants totaling EUR 4.4 billion have been paid out or instructed to pay. This was the result of a survey by the Handelsblatt among the 16 state ministries of economy and state development banks, which asked about the current status in the individual countries.

Of the 4.4 billion euros, 2.33 billion euros went to North Rhine-Westphalia and 1.3 billion euros to Berlin. In late Friday afternoon, North Rhine-Westphalia and Baden-Württemberg announced new figures, so that the total amount of Corona emergency aid that had already been paid out in Germany rose to at least 4.8 billion euros. The federal states update their figures at different times, which is why the current determination of the total amount is difficult.

The amount of emergency aid depends on the size of the company. Companies with up to five employees receive a one-off payment of 9,000 euros from the federal government, and companies with six to ten employees receive 15,000 euros.

In addition, the federal states can increase the grants using their own funds. In Berlin, for example, the state program was exhausted after just a few days.

Some countries have also launched grant programs for larger companies. Bavaria, for example, provides direct help to all companies with up to 249 employees. The federal government has set up its own rescue package for companies with more employees. The programs of the federal and state governments have been included in this list to determine the total amount of Corona emergency aid.

While NRW said on Friday morning that it had already approved around 327,000 of the 342,000 applications received, the transfer of the grants is still being delayed elsewhere. One of the reasons for this is that state development banks claim to have to deal with incorrect applications.

The investment bank in Saxony-Anhalt stated that half of the applications had not been completed. As a result, bank employees must first contact applicants to query missing data before the help can be released.

More: Up to 14,000 euros for small businesses – how the corona money application works.


Companies can support suppliers with guarantees

Felix Hufeld

The Bafin President explains how companies can support each other.

(Photo: dpa)

Berlin This clarification should help many companies: They are allowed to support suppliers with guarantees or sureties. Bafin President Felix Hufeld said this in a letter to the FDP parliamentary director, Florian Toncar. The letter is available to the Handelsblatt.

Hufeld’s statement is important for companies: the corona crisis shows how quickly they can run into liquidity problems and thus break entire supply chains. Because the pronounced division of labor in the German economy ensures a high degree of interdependence. If an essential supplier fails, the entire production process can stall. Guarantees could be a solution if they are not principally reserved for banks.

Hufeld points out that the provision of guarantees is in principle a guarantee transaction that is reserved for banks. But entering as a guarantor for a supplier in a vertical value chain is a constellation “which, in my opinion, can separate from the guarantee business from the point of view of the ‘takeover for others’ feature.”

The failure would also mean difficulties for the guarantor, Hufeld continued. Ultimately, the guarantor wants to protect his own business by providing a guarantee. The guarantor also documents his own economic interest by not charging a fee for the guarantee.

The occasion was a letter from Toncar to Hufeld, which is in the Handelsblatt. In this, the FDP politician had solicited concrete help for companies. “Small and medium-sized companies in particular are often dependent on individual, highly specialized suppliers and failures can hardly be compensated for even in the medium term,” writes Toncar.

Hufeld is confident that the problem addressed by Toncar will be solved within the framework of existing laws and interpretation practice. “I took your advice as an opportunity to include a corresponding clarification in the information sheet,” writes the Bafin President.

Toncar is happy with the result of his advance. “If companies, as guarantors, take responsibility for their suppliers and want to protect jobs, the state must give them all the options right now.” He is therefore pleased that Bafin is taking action here so quickly and adapting the relevant rules.

More: This is how companies secure their liquidity in the corona crisis.


EU Commission approves improvements to KfW loans


According to Federal Minister of Economics Peter Altmeier, among other things, “the federal states can now set up credit programs across the board”.

(Photo: AP)

Berlin In the corona crisis, the EU Commission approved improvements to KfW loans for affected companies. State funding institutes could now also grant more favorable credit terms, the Federal Ministry of Economics announced on Friday.

The regulation makes it possible for state funding institutions to grant credit programs with the same favorable conditions as they already apply to the state development bank KfW.

Federal Minister of Economics Peter Altmaier (CDU) said that this was another important component in addition to the KfW special loan program to give companies quick access to more liquidity.

“Now the federal states can also set up nationwide loan programs that apply the good funding conditions of the KfW special program that has already been approved and thus help companies to increase their liquidity quickly and at low interest rates.”

The Federal Government is also working on further improvements to help for companies. But there are no decisions. The EU Commission has to agree to further steps.

More: KfW expects loan requests to amount to 50 billion euros.


KfW expects credit inquiries of 50 billion euros

Frankfurt The state development bank KfW expects a real rush on its corona development loans. “The volume will surely run up to 50 billion euros,” said KfW CEO Günther Bräunig in a conference call on Thursday. “I still cannot imagine whether it will really be 100 billion euros, but I would not want to rule it out either.”

By Thursday, KfW had received 2,432 loan applications, with which aid in the amount of EUR 10.6 billion had been applied for. The development bank has already committed around 750 million euros. But that’s just the beginning: From next Monday, KfW will not only be able to promise the loans to the banks, but will also be able to pay them out directly.

So far this has not been possible. Many institutes have therefore withheld their applications and do not want to submit them until Monday. “Then the big wave will start with small loans,” said the KfW boss. Ingrid Hengster, who is responsible for the domestic promotional business on the KfW board, assured: “We are set up so that we can process several thousand applications a day.”

Hengster and Bräunig assume that the majority of applications will be received in the next few weeks and that the run on corona loans will slow down again in May. The KfW Corona program can, however, be tapped until the end of the year.

The need is great. KfW economists expect Germany to inevitably plunge into a severe recession. “Our analysis shows that a real crash is to be feared, especially in the second quarter. Our estimate is minus ten to 15 percent, ”warned Bräunig. “Now it only matters how quickly we can achieve results with the special program.”

However, many business and banking representatives have complained in the past few days that the KfW programs exclude too many companies. “Loans under the KfW program can only be given to companies that are expected to be able to repay the loan within five years,” said Sparkassen President Helmut Schleweis in a recent interview with Handelsblatt. “This is currently not the case for many companies from industries that are suffering particularly badly from the corona crisis.”

No help for the weakest companies

The easiest way for companies to get promotional loans that they need the least, Schleweis criticized. “The companies that are currently most in need of help are often not suitable for promotional credit programs.” Bräunig is aware that the KfW program cannot help the weakest companies. “It’s not about getting credit for everyone who needs money,” he says.

Because even the house banks have to come to the conclusion in their risk assessment that the companies survive the crisis and can ultimately repay the loan. This is difficult at a time when nobody knows how long many shops are closed and events are prohibited.


KfW has therefore given the companies scenarios on the basis of which they should check whether a company has a “positive continuation forecast”, as the jargon says. The banks are expected to assume that a shop or company will remain closed for the next three months and that life will only begin to return to normal in July.

For 2021, the banks can again expect business to be reasonably normal. In a second test, the institutes are then asked to examine a stress scenario that deals with the question of whether a company can still repay its loan in five years if economic life remains practically closed for six months.

These hurdles are likely to be too high, especially for those industries that can hardly make up for lost sales, such as restaurateurs, hoteliers or companies from the event sector. In addition, many banks are very hesitant anyway. Many business and banking representatives are calling for the state to assume even more liability than it has already done: At present, state liability is capped at 90 percent for small and medium-sized companies, and 80 percent for larger companies. The DIHK had asked for a liability of 100 percent, which would violate the current EU aid rules.

Bank representatives also demand that KfW loans should be classified as subordinated liabilities. That would mean that in the event of bankruptcy, the banks could collect their old debts from the companies first – and the taxpayer would be left with all the greater losses.

Bräunig did not want to say specifically what he thinks of such demands. What is clear is that all these proposals would result in the state remaining stuck with much higher losses. “This is a political decision,” says Bräunig. KfW has bundled all of these suggestions and also sent the Federal Government an assessment of KfW. In addition to the Federal Government, the EU Commission would also have to approve further state aid for the economy. Bräunig did not dare to predict how this would work out.

In an interview with the Handelsblatt a week ago, however, Bräunig emphasized that the banks should also have a certain self-interest in giving their customers access to the KfW programs: “Ultimately, the banks also have other loans outstanding with most customers and have a keen interest that the company survives, ”he said. That is why it is also important for the banks that their corporate customers now receive further liquidity support from KfW.

Capped interest rate

In order for the promotional loans to pay off for the industry, KfW has come up with a complicated construct. The interest rate for companies is capped for most KfW special loans: for small companies, depending on the creditworthiness, it is between 1.0 and 1.46 percent, for larger companies between 2.0 and 2.12 percent.

These are special conditions of the corona crisis for companies that are far below the usual promotional interest rates. But the banks are left with more: they can calculate the part of the loan for which they are liable – i.e. between ten and twenty percent of the loan amount – with the usual, significantly higher interest rates. They may collect this interest. Anything that goes beyond this must be paid to KfW.

There are also bankers who consider KfW’s funding programs to be attractive. “Because the banks are also refinanced by KfW – currently at interest around the zero line, you can earn a reasonable amount of money,” says a bank that likes to grant promotional loans.

More: Many companies run out of liquidity despite short-time work or deferral of rent. KfW loans are supposed to help, but negotiations with banks are often tough.


KfW makes a big loss in the first quarter of 2020

KfW in Frankfurt

The state bank plays an essential role in combating the economic consequences of the corona pandemic.

(Photo: dpa)

Frankfurt Despite the slump in interest rates, the state development bank KfW also generated billions in profit last year. As forecast, the profit was lower than in the previous year, but developed better than expected, as KfW announced in Frankfurt on Thursday. The bottom line, the institute earned 1.4 billion euros. The previous year it was 1.6 billion euros. “The consolidated profit achieved in the 2019 financial year is very satisfactory,” said KfW boss Günther Bräunig.

For the first quarter, however, KfW will probably have to make a loss of hundreds of millions of euros due to the corona crisis. “Despite the good operating result of EUR 300 million in the first two months of 2020, a consolidated profit of EUR 600 million to EUR 950 million is expected for the first quarter,” said the bank. However, the quarterly financial statements have not yet been finalized and the number can be exceeded or fallen short of.

The institute plays a central role in the federal corona aid. Since March 23, companies can apply for funds from the KfW special program at their main bank. The state development bank – and thus the public sector – assumes most of the risk in the event that entrepreneurs cannot repay the money. There have been repeated complaints from the business community that the money is not getting to the companies quickly enough. There are also demands that the federal government should 100 percent secure the aid loans.

The institute, which belongs to the federal government (80 percent) and the federal states (20 percent), committed funding of EUR 77.3 billion last year (previous year: EUR 75.5 billion).


Grants & support programs in detail

KfW logo

The state development bank provides aid loans for companies and the self-employed.

(Photo: obs / Accor Hotellerie Deutschland GmbH)

The federal government has decided on a bundle of measures to support the economy in the face of the corona crisis. A credit program of the KfW development bank, in which the state assumes 80 to 90 percent of the liability, plays a central role in this. The loans are applied for and processed through the companies’ house banks.

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