German banks hit by another scam

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The Independent Online
TWO months after the collapse of the Schneider property development empire, Germany's banks were grappling yesterday with another case of alleged business fraud, and potential losses of nearly DM2bn ( pounds 800m).

All four management board members of Balsam, a leading maker of artificial surfaces for sports halls, football pitches and athletic tracks, are under arrest, accused of counterfeiting factoring documents to raise money for currency speculation. The finance director has apparently already confessed to the scam.

While banking exposure to Balsam is about DM300m, the biggest potential losses involve Procedo Factoring company, which is on the brink of insolvency because of its dependency on dealings with the sports floor manufacturer. More than 60 per cent of its turnover was based on Balsam.

Procedo owes creditor banks about DM1.75bn. Banking sources were pessimistic about recovering the loans to the companies. 'To be dealing with another big fraud mess before we have even recovered from the Schneider fiasco is more than humiliating,' one Frankfurt banker said.

Jobst Schmiedeskamp, the Bielefelder senior state prosecutor, said Balsam's fraudulent activities had been going on for years. The sports floor manufacturer's managers stand accused of forging invoices, as well as supporting documents from US accounting firms such as Arthur Andersen.

The forged papers presented to Procedo were used to raise cash for speculation on the international currency markets.

The prospect of yet another round of heavy losses has pitted the German banking community against the big insurers, led by Allianz, who are the main owners of Procedo.