banking clan

Oppenheim's Decline and Fall

Reuters in court
Facing the music.
  • Why it matters

    Why it matters

    As Europe’s largest private bank, Sal. Oppenheim was long considered the embodiment of stability and reliability until its downfall in 2008.

  • Facts

    Facts

    • Four former managers, including two members of the owner families, are currently on trial for breach of trust.
    • Alongside other mistakes, Sal. Oppenheim pumped millions into the Karstadt holding Arcandor, which has come close to bankruptcy several times since 2008.
    • Together with real estate developer Josef Esch, the bank had launched several real estate funds that are making losses, prompting claims for compensation.
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    Audio

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A Cologne Court will decide the future of five managers accused of running down Sal. Oppenheim, Europe’s largest private bank on Thursday.

The former chief executive, Matthias Graf von Krockow is accused of destroying one of Germany’s most prestigious financial institutions.

Founded in 1789, the bank survived wars and revolutions but fell foul of the financial crisis and needed to be rescued by Deutsche Bank in 2009.

Three former senior managers are in the dock alongside Mr. von Krockow; Christopher von Oppenheim, Friedrich Carl Janssen and Dieter Pfundt – and a real estate dealer, Josef Esch.

The trial has lasted 120 days. At its end, the plaintiffs may receive long sentences of up to six years in prison.

Mr. von Krockow is likely to get the longest sentence; if he’s lucky, he’ll get probation, which is only possible in Germany for sentences of less than two years.

In late 2014, public prosecutors Torsten Elschenbroich and Gunnar Greier revealed the sentences under consideration: Four to four and a half years for Mr. von Krockow, three and a half to four years for Mr. Janssen, three to three and a half years for Mr. von Oppenheim. Mr. Pfundt and Mr. Esch may be let off on probation.

On Thursday, the prosecutors will reveal whether they will stick by their initial recommendations or call for higher sentences.

The case was brought by former clients against the bank had entertained in the past at hunting parties and polo tournaments, and also against their former asset managers.

Those clients had invested in 70 real estate funds that Sal. Oppenheim had launched together with developer Mr. Esch. The investments promised high returns, and because clients financed them with loans they could save on taxes as well.

Today, many of the funds are in the red and investors feel cheated. Deutsche Bank estimated their claims amount to €1.1 billion in its annual report.

“The bank had been a landmark in Cologne for centuries. The family was made up of entrepreneurs who helped build the first railroad, founded the city's zoo and renovated its cathedral.”

Confidant of Christopher von Oppenheim,, former Sal. Oppenheim manager

Deutsche Bank now estimates the Oppenheim brand to be worth just €27 million.

It has fallen a long way. Sal. Oppenheim was once the bank of the rich and powerful.

The bank had been a landmark in Cologne for centuries. The founding family were entrepreneurs who helped build the first railroad, founded the city’s zoo and renovated its cathedral. They were philanthropists who invested in art and culture.

The bank was known for thinking in terms of generations, rather than quarterly reports. It made its name offering investments not available anywhere else.

“We don’t recommend anything we don’t invest in ourselves,” Mr. von Krockow used to say. In his heyday, he impressed his clients with oil paintings of ancestors hanging on the wall of the Cologne head office. Nowadays, the paintings are long gone and only 500 employees work at the bank, far below the 4,500 the bank employed at its peak.

The interests of family and bank had become too close, too interconnected.

In the court room, those in the dock reflect this problem: two members of the family and the two managers brought in from outside.

Mr. von Krockow and Mr. von Oppenheim are members of the former owner family; Mr. Janssen and Mr. Pfundt are the external managers. They have tried to distance themselves from the other two, to shift the blame to the others.

Two thirds of the bank had belonged to two clans, the Oppenheims and the Ullmanns.

Each family placed one member to act as a partner who was personally liable on the management board, to safeguard and increase their inheritance.

But no-one checked how far the family board members were suited to the job.

“The two would have never made it this far in other companies,” said a former high-ranking Sal. Oppenheim manager.

 

von krockow in court dpa
Mr. von Krockow in the court in Cologne. Source: DPA

 

 

Mr. von Krockow came from an old but poor aristocratic family. He worked through the ranks at other banks then married heiress Ilona von Ullmann. An easy-going, upbeat person, he nonetheless created an image for himself as a majestic banker.

The story is similar for Christopher von Oppenheim, who even aged 50, looks like a boy dressed up in a suit. His grandfather and father made it clear that some day he would work at the bank, continuing the family tradition. He became chief adviser to Sal. Oppenheim’s wealthy clients.

Mr. von Oppenheim used to think in centuries, not years; meanwhile e-mails often went days unanswered as the problems of today seemed to pass him by. “He knows that he made a mistake,” said a source close to him, “but he doesn’t know exactly what it was.”

According to the prosecutors, there were in fact several big mistakes.

The trial centers around two from 2008: a real estate transaction in Frankfurt and an investment in a mail order business, Arcandor, which went bankrupt.

Mr. Esch, the real estate manager, had a role in both.

He first met the family when Mr. von Oppenheim’s father Alfred and ex-Bundesbank CEO Karl Otto Pöhl headed the bank. They launched the first fund together, then another, and eventually more and more.

As the funds business grew, so too did Mr. Esch’s influence, gaining power of attorney from several family members.

Mr. Esch, though, is likely to leave the Cologne court with the lightest penalty, despite the role he played in the bank’s downfall.

 

Sal Openheim dpa
Exhibit A. Source: DPA

 

 

The first case centers around the sale of a building in Frankfurt, the planned new quarters of Sal. Oppenheim’s investment banking department. Mr. Esch and other members of the family founded a company in order to buy and renovate the house. They extended credit lines worth millions to themselves through the bank and sold the office complex to Sal. Oppenheim a few months later, at the end of 2008, for €123 million.

Prosecutors later reviewing the case called the sum too high.

The private bank failed to check the financial health of the ailing company first, according to the prosecution.

The second case concerns the dramatic weekend of September 26 to 28, 2008, when retail giant Arcandor first came to the verge of insolvency. If its parent company, Karstadt, had gone bankrupt, it would have been disastrous for Sal. Oppenheim, which had granted its longtime customer Ms. Schickedanz extensive loans for which she had only provided Arcandor shares as security.

About 150 clients had also invested in funds run by Mr. Esch; the funds’ performance was entirely dependent on Karstadt paying rent.

The bank itself would also have been hit hard by a bankruptcy. After all, it had personally vouched for the loans with which Ms. Schickedanz had increased her stake in Arcandor in 2005.

So through a capital increase, Sal. Oppenheim became Arcandor’s major shareholder, extending further credit lines worth millions.

The private bank failed to check the financial health of the ailing company first, according to the prosecution.

In the courtroom, this failure of oversight seemed hard to understand.

Mr. von Krockow and Mr. von Oppenheim admitted to having made mistakes; the two managers from outside are contesting the accusations.

 

Sal Oppenheim Demise of a Bank

 

Things became clearer when Henri Pferdmenges stepped into the stand.

Mr. Pferdmenges’ grandfather was the main shareholder of Sal. Oppenheim between 1929 and 1953. During the Nazi regime, he gave the bank his name; the Oppenheims had converted to Christianity in the nineteenth century, but the name still sounded Jewish.

Grandson Henri inherited the shares, but had little more to do with Germany or the bank, aside from flying in from abroad four times a year to attend meetings of the supervisory board.

It seems he didn’t pay sufficient attention to the business.

“I used to ask fewer questions than the others, my German isn’t very good,” Mr. Pferdemenges said.

Two bodies were supposed to monitor the personally liable partners’ activities, the shareholders’ committee and the supervisory board. In court Mr. Pferdmenges could no longer recall the difference. He hadn’t checked all the folders of documents “in small print” he had received in advance of the meetings.

After all, there seemed to be no reason to mistrust the leadership.

“They always behaved professionally and seemed well prepared,” he said. He had been “close friends” with Mr. von Krockow and Mr. von Oppenheim since they were teenagers.

The meetings also tended to be a quiet business, low on criticism, high on decorum.

Witnesses recalled that when rebellious Nicolaus von Oppenheim, who had suspected the impending disaster, was rude during a meeting, he was rebuked and his emotional outburst deleted from the minutes of the meeting.

All seemed to be going perfectly well – with millions of euros flowing in, funding extravagant lifestyles.

They enabled Mr. von Oppenheim’s mother to renovate a villa in the city of Cologne, for more than €8 million.

Supervisory board chief Georg Baron von Ullmann acquired a cigar brand he named for himself.

Other members of the family took clients to parties on Spanish islands in private jets.

THe bank’s controlling families are still sticking together to defend their interests as far as they can.

They have achieved some limited success. Deutsche Bank has agreed to top up the original purchase price for the bank based on an agreement made at the time of the takeover, according to information obtained by WirtschaftsWoche. The family will receive a sum in the two-digit millions.

Not all of them will receive money: The Ullmanns and von Oppenheims will forfeit their dues in favor of other former shareholders to fend off compensation claims.

Whatever sentences the court imposes, those in the dock will have time to reflect on the changes and complexities in the bank’s history and their hand in its spectacular fall from grace.

 

This text originally appeared in WirtschaftsWoche. Handelsblatt’s Volker Vottsmeier also contributed to this article. To contact the authors: henryk.hielscher@wiwo.de, cornelius.welp@wiwo.de.

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