Former CEO of German lender IKB convicted of misleading markets over subprime risk

Ex-CEO of Germany’s IKB convicted

BERLIN — The former chief executive of Germany’s IKB Deutsche Industriebank AG was convicted Wednesday of misleading investors over the extent of the lender’s exposure to the looming financial crisis in 2007.

The Duesseldorf state court found Stefan Ortseifen, 59, guilty of market manipulation, the German news agency DAPD reported. It imposed a 10-month suspended prison sentence and a €100,000 ($127,000) fine.

IKB issued a profit warning on July 30, 2007, saying it had “felt the impact of the crisis in the U.S. subprime mortgage market” and Ortseifen had resigned.

The case against Ortseifen centered on a statement issued 10 days before the profit warning in which, prosecutors charged, the economic impact on IKB of the gathering crisis was deliberately portrayed too positively.

Presiding judge Brigitte Koppenhoefer said Ortseifen had given the impression that the brewing financial storm would leave IKB unscathed — helping drive up the bank’s share price.

However, she said that Ortseifen hadn’t enriched himself and had acted “in the not necessarily well-understood interests of IKB.”

The defense, which had pleaded for his acquittal, said it would appeal the verdict. Ortseifen said when he went on trial in March that he carries “no guilt.”

He said that, from today’s point of view, the assessment of subprime market risk was a “collective misjudgment,” but that on the basis of the financial world’s knowledge at the time he gave correct information.

IKB’s problems sprang from its Rhineland Funding investment vehicle’s apparent inability to cover its funding needs because of exposure to U.S. subprime loans.

The lender’s biggest shareholder at the time, Germany’s state-owned KfW development bank, and the banking industry put together multibillion-euro (dollar) rescue packages for IKB. IKB was sold in 2008 to Dallas-based Lone Star Funds.