Economy & Politics

WirecardHow the Oldenburgische Landesbank made a bet on Markus Braun

“Grandma’s Favorite Bank”: The Oldenburgische Landesbank has a rather staid imageimago images / Schöning

Just a few weeks before the Wirecard collapse, a small German bank made a big bet on Markus Braun. While investors were still shaken by the results of a special audit of the Wirecard balance sheet, the Oldenburgische Landesbank (OLB) replaced Deutsche Bank as the main lender for the then CEO of the payment service provider Braun. Braun was the public face of Wirecard and the largest single shareholder.

The decision of OLB from the sleepy university town of Oldenburg is symptomatic of its change after its takeover in 2017 by a consortium, which also includes the US private equity company Apollo. The investors had bought OLB from its long-time owner, the insurance giant Allianz, for EUR 300 million.

The institute, once ridiculed for its conservative approach as “Grandma’s Favorite Bank”, began a series of mergers with the new owners, which turned the regional lender into an institution with national ambitions and a greater risk appetite.

In mid-May, when Wirecard shares were already under pressure, OLB and Braun signed a EUR 120 million loan agreement, according to a document available to the Financial Times. This sum was higher than OLB’s net profit for 2019 and corresponded to one tenth of its core capital.

“Today OLB has a business model that is based on a high risk appetite,” says Gunter Dunkel, a financial expert with decades of experience in northern Germany and former CEO of NordLB.

Deutsche Bank got out as a lender

In the past three years, OLB’s total assets have grown by more than a third, while net profit has quadrupled. Although the bank’s private customer business still generates half of its earnings with 126 branches, 20 percent now comes from special financing such as the financing of takeovers, commercial real estate and shipping. The rest comes from traditional banking with corporate customers.

OLB’s return on equity quintupled to 10.4 percent last year. It is one of the few German banks that earn its cost of capital, which analysts estimate to be around 10 percent. Apollo declined to comment.

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By lending to Braun, OLB followed in the footsteps of Deutsche Bank, the largest German lender. The German loaned the Austrian CEO 150 million euros at the end of 2017 and accepted half of his seven percent stake in Wirecard as security.

But after whistleblowers made repeated allegations of balance sheet fraud and the Financial Times reported, Deutsche Bank became increasingly nervous about the loan. The bank decided not to extend it, reports people familiar with the matter. Deutsche Bank declined to comment.

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