East shakes as Schneider runs: Cities such as Leipzig face the worst damage if the edifice collapses. Steve Crawshaw in Bonn assesses the ramifications

A LACONIC press release contained the bombshell. 'To our surprise and dismay Dr Jurgen Schneider has informed the board of Dr Jurgen Schneider AG that he has become ill over Easter and that, on the advice of doctors, he must immediately withdraw from active involvement in the business. We do not know his whereabouts.'

Translated: one of Germany's largest property groups was on the verge of collapse, putting thousands of jobs at risk and endangering economic recovery, especially in the east.

'Panic]' cried the front-page headline in Bild, the mass-circulation daily. 'Where is the rogue?'

Speculation has variously suggested that the 59-year-old property developer and his wife, Claudia, may now be in Switzerland (where he has a pounds 2m villa on the shore of Lake Lugano), or in Brazil or in Iran. Other accounts place him in Barbados or Martinique, which he regularly visited on holiday (with wife, son, daughter and bodyguards) in his private Lear jet. In short: name your exotic destination - he might be there.

Bild says that Mr Schneider helped himself to between DM50m (pounds 20m) and DM100m, which he allegedly cleaned out of various accounts in order to prevent the money being frozen or seized. According to Bild he took the money with him 'in four to eight suitcases'. Whether or not Mr Schneider took the suitcases with him before succumbing to his 'illness', the cause for the group's collapse appears to be a familiar one: property dealings. Mr Schneider bought many properties at a premium a few years ago when the market was high; then, after expensive renovation, and as prices began to drop, he found it difficult to get his money back.

Like Robert Maxwell, Mr Schneider insisted up to the moment of his disappearance that all talk of financial problems was nonsense. Two months ago he blithely told Frankfurter Allgemeine Zeitung: 'My projects are always sound and pay for themselves.'

Last week those reassurances were revealed to be fantasy. On Friday the Schneider group filed for bankruptcy. Meanwhile, as a result of evidence supplied by the Schneider group's biggest single creditor, Deutsche Bank, the authorities opened investigations into Mr Schneider in connection with attempted fraud.

A shopping arcade that Mr Schneider wanted to purchase was said to contain 20,000 square metres of rentable space (in reality: 9,000sq/m), which would bring in DM57m a year (in reality: DM8m). Not surprisingly, many are now asking how the banks allowed themselves to be so credulous.

It is reckoned that he has left behind debts and commitments of around DM5bn - most of it owing to the banks, and the remainder to contractors who will somehow have to pick up the pieces. Politicians of all parties, including Chancellor Helmut Kohl, have insisted that the banks should behave 'responsibly' and not force the smaller firms to carry the brunt of the disaster.

Deutsche Bank, which is thought to be exposed to the tune of DM1.3bn, saw its share price drop sharply when Mr Schneider vanished. By the end of the week, however, after 40 creditor banks attended a meeting with the rump board, the banks sounded almost sanguine. The properties are mortgaged, so the banks' own losses can be contained. There are suggestions, too, that at least some of the construction work will continue.

When things looked good for the Schneider group they looked very good. The headquarters of the now-collapsed empire was - is - a castle in the town of Konigstein, near Frankfurt. Schneider properties in both east and west were among the most prestigious in Germany. The 'building lion', as he was known, insisted that he loved old buildings, and gained praise for his schemes.

In the east German city of Leipzig and in his home city of Frankfurt Mr Schneider was particularly active. His company bought and renovated a number of historic sites in Leipzig - most notably, the upmarket Madler Passage, which opened last autumn, and includes the Auerbach's Cellar restaurant, the renowned setting of a scene in Goethe's Faust.

Now that the bubble has burst, there is no shortage of analysts who persuasively explain that the crash had long been inevitable and that the sums simply did not add up. Until recently, however, when the first complaints surfaced about delayed payments to contractors, few such worries were heard. Instead, in Leipzig and in Frankfurt, the authorities were delighted. The mayor of Frankfurt told him: 'Frankfurt can be proud of you.' In Leipzig Mr Schneider was welcomed as 'the saviour of the old city centre'.

Now, as with Maxwell, the enthusiasm has turned to bitterness. In the words of one critic, 'The dummies will again be the small firms, who were already squeezed.' Several thousand jobs could be lost, in Leipzig alone. In the east especially, such a blow would be considerable. The economy is just beginning to gain a momentum of its own. Growth is still fragile, at best. Crucially, the east German boom is still construction- led. Cranes crowd the city skylines, as buildings are renovated and rebuilt after wartime bomb damage and 40 years of decay. If that work were to slow down or come to an end the knock-on effect on economic confidence throughout east Germany would be enormous.

(Photograph omitted)

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