Criminal inquiry at WestLB

German state prosecutors are investigating the huge losses run up by WestLB's London-based principal finance arm for any evidence of criminal behaviour.

WestLB, which ousted its chairman, Jürgen Sengera, this week over the losses, said that German financial regulators had passed documentation relating to their investigation to the public prosecutor's office in Düsseldorf.

The investigation by the German financial supervisory authority, BaFin, found "grave deficiencies" in WestLB's risk control procedures in relation to a refinancing deal involving the UK television rentals company Boxclever.

Heavy losses on the Boxclever deal, which was carried out by WestLB's principal finance arm - controlled by Robin Saunders - pushed the bank deep into the red last year after it was forced to take write-downs and provisions totalling €1.9bn (£1.3bn).

WestLB said it would co-operate fully with the investigation but maintained there was no evidence of any criminal behaviour. "Following an internal investigation, the bank does not believe that any facts of criminal relevance exist," WestLB said in a statement.

If the state prosecutor concludes there is possible evidence of criminal wrongdoing - a process that will take two weeks - it will start a formal investigation into the bank and some of its senior employees.

Its concern is thought to relate to how and when WestLB decided to make £350m of provisions on the Boxclever deal. BaFin has raised questions about whether WestLB's management was quick enough to take notice of information from its risk department and whether it passed the information on to the bank's supervisory board in good time.

The principal finance department was nominally in charge of the Boxclever deal but Ms Saunders did not work on it and is not thought to be the subject of the investigation.

However, BaFin is continuing a separate investigation into the cross-holdings by which WestLB allowed Ms Saunders and her team to hold stakes in companies that WestLB also lent money to.