Of Special Interest


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1st November 2011

German Euro 55bn bad bank accounting mistake

The bad debt show in the accounts for FMS wert-management was reduced by €55.5bn (£48.8bn $78.6bn ¥5,955bn Y499.8bn) over the weekend. This was a explained as a correction of an accounting mistake. It is said that collateral held against derivative products had appreciated with the gain not set against the bad assets before now. This led to the overstatement of bad debt of €24.5bn for the year ending June 2010. The error increased by €31bn in the year to June 2011. FMS wert-management is the state-owned 'bad bank' for Hypo Real Estate. The government has been able to reduce its estimate of public debt as of the 2010 year end as a result.

Wolfgang Schäuble, German finance minister, sought to hide embarrassment behind outrage, calling for HRE and PwC, the accounts, to provide an explanation rapidly. The mistake has been capitalised on by the opposition political parties. Whilst the German government was not responsible for making the mistake the fact that it failed to spot an error in excess of €50bn may well become a serious electoral liability.