From Black Forest to Cologne, German towns fear Greensill losses

By Tom Sims and Patricia Uhlig

FRANKFURT (Reuters) - Bad Duerrheim, a town of 13,400 people on the fringes of the Black Forest, is one of many across Germany united by a shared anxiety, the possibility of losing millions of euros invested with Greensill Bank.

The obscure Bremen-based private bank's owner Greensill Capital entered insolvency this week after losing insurance coverage for its debt repackaging business.

Greensill Bank, meanwhile, was locked down by Germany's financial watchdog last week with a warning of an imminent risk that its debt would become unmanageable and a statement calling some of its financial accounts into question. Greensill Capital said that the bank always sought external legal and audit advice before booking any new asset.

"We have to find out what happened," Alexander Stengelin, a Bad Duerrheim official told Reuters.

German towns have turned to alternative investments such as those offered by Greensill Bank as European Central Bank efforts to prop up the wider economy have resulted in so-called negative interest rates, with fees charged for savings.

Cologne, famed for its cathedral and perfume, and Wiesbaden, which is close to Germany's financial capital Frankfurt, both say they consulted brokers on where to park their cash.

The two, along with at least a dozen others, say they opted for Greensill to avoid fees charged by other banks and encouraged by its once healthy credit rating.

The municipalities now fear their cash, largely invested at Greensill Bank in time deposits with short maturities of several months, may be lost for good as they are classed as institutional investors and therefore are not covered by a deposit protection scheme for individuals.

Greensill Bank states this on its website but some cities are nevertheless calling on the federal government to step in to cover any losses they may incur. A Greensill spokesman declined to comment.

Town officials are now consulting with others in the same position and hope to convene a video call on how to proceed.

OTHERS AT FAULT?

With much of Germany still in lockdown and a COVID-19 vaccine rollout proceeding slowly, the timing of the Greensill Bank crisis is difficult for cash-strapped municipalities.

As more cities and the state of Thuringia, famous for its sausages, have disclosed that they are Greensill Bank customers, the extent of the potential damage has become clear.

Monheim am Rhein disclosed it parked 38 million euros in funds with Greensill Bank, nearly 1,000 euros per resident.

Its mayor Daniel Zimmermann said he was in touch with 19 municipalities who together hold 200 million euros ($238 million) in investments with the bank.

An emergency meeting in Monheim on Tuesday discussed the fallout, and whether internal mistakes were made or whether brokers who helped make the investments should bear some of the blame.

"We don't want to shun responsibility, but others may be at fault," Zimmermann told Reuters.

Zimmermann said that two of the brokers it used -- CC Gesellschaft für Geld- und Devisenhandel mbH and Witt GmbH & Co. KG -- were also used by other towns.

CC deals exclusively in helping municipalities park cash, its owner Christian Steier said when contacted by Reuters.

He declined to comment on specific customers but said that communication on such transactions was usually straightforward.

"It's like an order. It's a simple product. A lot of it is via email and impersonal," he said.

Witt did not respond to requests for comment from Reuters.

Two other brokers Zimmermann said were used by Monheim did not respond to written questions seeking comment.

Wiesbaden has 20 million euros with Greensill Bank, which it used in the past without problems, city official Axel Imholz said, adding that it had used brokers for the transaction.

Imholz did not reveal the names of the brokers but said Wiesbaden is investigating why Greensill Bank was recommended.

For Bad Duerrheim, which says it has 2 million euros with the bank, Stengelin said that the town felt comfortable that two brokers independently recommended Greensill Bank.

And while it had been reassured by the fact that the money would be close to home in a bank in Germany rather than offshore, it was not now hopeful of recovering its cash.

"We expect the worst, but hope for the best," he said.

($1 = 0.8405 euros)

(Editing by John O'Donnell and Alexander Smith)