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Court Cases

HSH Nordbank executives on trial for fraud

A trial has begun against the entire former executive board of German lender HSH Nordbank. The managers stand accused of nearly ruining the bank with shady financial deals at the height of the 2008 financial crisis.

The six former HSH executives, including the bank's CEO Dirk Jens Nonnenmacher and his predecessor Hans Berger, were charged with breach of fiduciary trust, public prosecutors in the northern German city of Hamburg said at the beginning of the trial on Wednesday.

In addition, Nonnenmacher and HSH's former capital markets chief, Jochen Friedrich, were accused of accounting fraud, they said.

During the 2008 financial crisis, regional state-owned lender HSH lost billions of euros on dubious investments, forcing its state owners to shore up the bank with a capital injection to the tune of 3 billion euros ($4 billion), and an additional 10 billion euros in loan guarantees.

State Banks in Crisis - HSH Nordbank

At the center of the trial before the Hamburg court are side deals struck by the executive board and aimed at buffering risks on the bank's real estate assets.

In December 2007, the managers sold loans tied to real estate assets to BNP Paribas, agreeing in return to buy structured securities from the French lender. Some of the securities were linked to certificates issued by Lehman Brothers bank and Iceland bonds, which both collapsed as the financial crisis emerged.

The deal with BNP Paribas was arranged through a special purpose vehicle called Omega. When markets turned sour in 2008, the deal forced HSH to take writedowns of 500 million euros, and eventually seek a state bailout.

During the trial, the prosecutor accused the HSH executive board of failing to appropriately check on the deal's possible risks. Moreover, they said they would seek to establish that the managers intentionally accounted for the side deal wrongly.

In the run-up to the trial, former CEO Nonnenmacher said that a false balance sheet was not a falsified one, and that he would plead not guilty in the case.

At stake for Nonnenmacher is also a golden handshake to the tune of 4 million euros which he received at the time of his departure from the bank in 2011.

If found guilty, however, he could face up to 10 years in jail.

uhe/kms (Reuters, dpa, AFP)

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