[A-List] Germany: Kirch crisis

[Keaney Michael]

Bank regulators review loans made to Kirch

John Hooper in Berlin
Thursday April 11, 2002
The Guardian

German banking regulators said yesterday they had launched a special review of loans made to the stricken Kirch media group whose core firm declared itself bankrupt earlier this week.

"About three weeks ago we asked a third party to carry out a special audit of the larger Kirch banks," Uwe Traber, head of the major banks department at the Bundesaufsichtamt für das Kreditwesen (BaKred), the federal banking watchdog, said. "The aim is to discover... whether the banks need to make additional risk provisions."

The inquiry is politically, as well as financially, extremely sensitive. Kirch's biggest lender is Bayerische Landesbank, which is half-owned by the Bavarian government of Edmund Stoiber, the right's candidate in this year's general election.

Germany's chancellor, Gerhard Schröder, claimed this week that the bank had made loans to Kirch "for which the security is questionable in the highest degree". A spokesman for the regulators said the review covered "all the major Kirch creditor banks".

The unidentified auditors hired by BaKred are expected to be looking in particular at whether their claims on Kirch's assets overlap. Another issue is the value of the security they have been pledged.

A spokesman for the regulators said one reason it hired an outside auditor was the difficulty of costing the film and TV rights that form a substantial part of the Kirch group's balance sheet. Analysts say their value is difficult to estimate because they depend on changing public tastes.

Some of Kirch's creditors say they have secured loans with binding collateral agreements. But disputes have started to emerge. Commerzbank's Wolfgang Hartmann this week challenged Dresdner Bank's statement that its loans are secured by KirchMedia's 25% stake in the profitable Spanish TV channel, TeleCinco.

If loans were found not to be properly secured, BaKred could order the banks to set aside more money on their balance sheets to cover them - a step that would eat into their earnings.

KirchMedia, the group's core film rights and free to air TV business which filed for protection against its creditors on Monday, was said by the banks to owe some EUR1.4bn (£853m). But the entire group's debts are reckoned to come to as much as EUR7bn, and one of the many puzzles surrounding the affair is which other parts of the group owe what.

There are two other main subsidiaries - KirchPayTV, which owns the loss-making Premiere World station, and KirchBeteiligung, which owns several local TV channels, a 40% stake in the newspaper publishing group Axel Springer Verlag and a majority stake in formula one motor racing. There is also Taurus Holding, the family holding company of the group's founder, Leo Kirch. The biggest liability - a EUR1.7bn put option held by BSkyB and exercisable in October - was written by Taurus Holding.

Full article at:
http://www.guardian.co.uk/business/story/0,3604,682109,00.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney at mbs.fi