BaFin confirms that Volks- und Raiffeisenbank Bad Salzungen Schmalkalden has too risky a business policy. It’s about loans worth millions, questionable real estate valuations – and football. The bank made headlines years ago.
The Volks- und Raiffeisenbank (VR-Bank) Bad Salzungen Schmalkalden is the focus of the Federal Financial Supervisory Authority (BaFin). This emerges from documents provided to the ARD political magazine Report Mainz is available. The Volksbank from Thuringia, which merged with Raiffeisenbank Borken Nordhessen last year, became known nationwide because of Stefan Effenberg.
The ex-football professional has been an employee of the bank since 2018, which is why the financial institution is also referred to as the “Effenberg Bank” or “Football Bank” in various media. Several clubs from the 1st and 2nd Bundesliga are customers of the credit institution.
The bank has already been in the headlines in the past because of a dispute with the financial regulator. This was also about the business policy and risk strategy of Thüringer Volksbank. In 2018, the Mühlhausen public prosecutor’s office conducted an investigation against its CEO on suspicion of breach of trust in a real estate deal.
The bank boss had always denied the accusation. The investigation was later discontinued against payment of a fine of 240,000 euros. In the meantime, BaFin had tried to dismiss the CEO.
Exceptional defects noted
A recent decision from BaFin now states that there are still deficiencies in the bank, “which, in terms of number and severity, are significantly out of the usual scope of a bank and cooperative bank.” BaFin’s audit took place as part of the so-called SREP (“Supervisory Review and Evaluation Process”), a uniform review and evaluation process in the EU.
Among other things, the viability of business models, risk management, governance structures and the capital and liquidity risks of banks are analyzed. The Bundesbank had already carried out a special audit of VR-Bank in the spring and had already identified significant deficits.
Criticism of risky lending
The criticism from the financial regulator BaFin relates, among other things, to large loans granted by VR-Bank Bad Salzungen Schmalkalden. Loans to several professional football clubs are said to have not always been granted with sufficient collateral. The bank thereby violated its own credit guidelines.
According to BaFin, this approach also applies to some foreign transactions of the Hessian-Thuringian Volksbank. For example, a company in Cyprus took part in a project in Greece that envisages the commercial use of a water source on Mount Athos in the monastic republic there. The result was a bad investment of 19 million euros. In general, BaFin comes to the conclusion that the bank shows a “significant risk appetite”.
Accusation: Questionable Business partner and high Real Estate Valuations
The SREP review also criticizes “significant serious findings” in money laundering prevention. According to BaFin, for example, VR-Bank granted loans totaling around 18 million euros to a Russian and a Cypriot citizen, which had already been linked to money laundering and terrorist financing. The investigative research platform OCCRP suggests that both people have connections to the Russian state bank VTB.
A third, important block in the SREP review concerns the real estate sector. In Germany, VR-Bank has acquired a number of buildings that were previously owned by Commerzbank, among others. What is striking, according to the supervisory authority, is that VR-Bank’s in-house appraiser acknowledged “significant increases in value” of these properties in the balance sheet – within a very short period of time.
Commerzbank is said to have sold a real estate portfolio with around two dozen buildings to VR Bank last autumn for around 21 million euros – but it is currently valued at around 50 million euros by the Hessisch-Thüringische Volksbank.
The bank refers to constructive discussions with the supervisory authority
Upon request from Report Mainz VR-Bank Bad Salzungen Schmalkalden did not want to comment on specific allegations from the financial regulator or on more general questions and referred to banking secrecy. The credit institution is currently working on clarifying the questions raised in a “constructive dialogue” with the Bundesbank, BaFin and the Federal Association of Volks- und Raiffeisenbanken (BVR).
According to information from Report Mainz Representatives from BaFin and BVR were also present at the bank’s last supervisory board meeting. The Volks- und Raiffeisenbanken in Germany installed a security system decades ago with which individual institutions are financially supported by the other members in the event of a crisis.
Overall, BaFin’s review comes to the conclusion that VR-Bank should significantly increase its equity ratio. The notice asks the institute to hold 14 percent of its own funds instead of at least eight percent in the future. However, the bank can still appeal against the order.