Wrong interest calculations BaFin is taking action

Status: 21.06.2021 5:08 p.m.

Premium savings contracts have long promised savers big money. However, in the low interest rate phase, many banks corrected the promised profit commitments downwards. BaFin is now intervening – in the interests of customers.

From Ursula Mayer, Mr

The Federal Financial Supervisory Authority BaFin obliges banks and savings banks to inform holders of premium savings contracts with a variable interest rate about ineffective interest rate adjustment clauses. To this end, the authority has published a general order – which is considered a sharp sword in the financial sector. The financial institutions must also explain to savers whether they have received too little interest as a result of the ineffective clauses. In this case, either back payments beckon or the banks can offer customers modified contracts with an effective interest rate adjustment clause. The changes apply retrospectively and also compensate for insufficiently paid interest in the past. According to BaFin, at least 247 banks and savings banks are affected. The total amount is open.

So far, banks have stood across the board

In the period between 1990 and 2010 in particular, the financial institutions offered a large number of premium savings contracts. These long-term contracts contain clauses that allow financial institutions to unilaterally change the guaranteed interest rate. They often did that in the low interest rate phase and cut savings rates, in some cases massively – at the expense of their customers. The Federal Court of Justice has meanwhile classified the clauses as ineffective.

BaFin Executive Director Thorsten Pötzsch refers to this in the general decree. He speaks of a “grievance” for consumers, which BaFin wants to remedy in terms of collective consumer protection. “We ensure that affected customers are comprehensively informed and legally treated,” says Pötzsch. Because for more than a year the supervisors have been trying to find a solution with the financial institutions in the interests of the customers, even at a round table – so far without success. The general decree shows that BaFin’s patience has come to an end.

Hundreds of thousands of customers affected

“We are assuming that banks and, above all, savings banks have concluded hundreds of thousands of premium savings contracts nationwide,” says financial expert Andrea Heyer from the consumer center in Saxony. She and her team have specialized in recalculating such contracts. More than 7700 customers from all over Germany have already contacted us.

As the consumer advocates have calculated together with experts, the financial institutions have calculated the interest rates too low for years in almost all cases. As a rule, consumers were unable to understand how they set the variable interest rate. Often the financial houses have lowered interest rates too much, in too large interest rate steps downwards. “Depending on the case, those affected are entitled to additional payments of a few hundred to over 40,000 euros in individual cases,” says Heyer. In this respect, she welcomes the fact that BaFin is now intervening – that is an important signal.

Suddenly it was 15,000 euros less

Karina Rother from Frankfurt, for example, signed such a premium savings contract at Frankfurter Sparkasse in the 1990s and wanted to do something for her retirement with it. “The Sparkasse promised me that with a term of 25 years it would really be worth it for me,” says Rother. She promised the customer steadily rising interest rates and ever higher cash rewards.

Rother assumed that she would get around 77,000 euros in the end – as it was calculated in an advertising flyer. Suddenly it should be around 15,000 euros less. In the end, she agreed with the Sparkasse on an extra payment of around 4,000 euros – but, says Rother: “It annoys me that a public institute in particular causes such trouble, even though it is in the interests of the company ‘Joe Bloggs’ should have in view. “When asked, the Sparkasse did not want to comment on the case because of banking secrecy.

Savings banks oriented towards the common good have a duty

Julian Merzbacher, consumer protection expert of the citizens’ movement Finanzwende, also sees the savings banks in particular as having an obligation to finally act and to approach customers on their own initiative. “It is a cheek that the public welfare-oriented institutes have so far mainly relied on the time factor and statutes of limitations when it comes to saving premiums”.

The general decree of BaFin also explicitly refers to contracts that have already been terminated. But the extent to which claims from customers are already statute-barred – or maybe not – is not a matter for BaFin, it says there, but the courts would have to clarify in case of doubt.

Big incomprehension among the banks

However, the credit institutions now have four weeks to appeal against the general ruling. This is currently being checked, according to the Deutsche Kreditwirtschaft, the umbrella association for the banking industry. “It is astonishing that the Federal Financial Supervisory Authority is pre-empting the courts,” said a written statement.

Because there is still another judgment pending at the Federal Court of Justice, according to which specific criteria banks have to adjust interest rates in long-term savings contracts. When this decision will be announced is not yet known – consumer advocates are expecting the verdict in the fall. And of course the German banking industry wants to take this into account, according to its own statements.

Don’t just accept comparison offers

But just waiting until then is not an option, according to BaFin. After all, it is uncertain when a decision by the Federal Court of Justice can be expected, according to the general ruling. As a result, the situation is unnecessarily prolonged for the financial supervisors, and consumers should now be informed urgently.

With a view to the general ruling, consumers do not have to do anything at first. However, you should pay attention to whether you will soon receive mail from your house bank regarding premium savings contracts or not. If comparative offers are made, consumer advocate Heyer recommends having them checked so that no saver is taken advantage of

Price capers of the Windeln.de share The dangerous game of gamblers

Status: 10.06.2021 6:24 p.m.

Small investors let shares of the baby outfitter Windeln.de shoot up first – then they crash. This risky game is powered by social media. Newcomers in particular make a lot of mistakes. From Angela Göpfert, tagesschau.de From the so-called penny stock to the investor’s favorite: The story of Windeln.de reads so seductively simple at first glance. Within a few days, the paper soared from around 70 cents to 6.92 euros – a staggering price increase of almost 900 percent. The share of the online baby outfitter was not driven by new, positive news about the development of the company, but by a host of gamblers who drum for the company in investor forums such as Reddit and on social media.

Report of loss in April

They drummed for a company that made a net loss of 13.7 million euros in 2020 and officially announced in April that it had suffered a loss of more than half of its share capital. In other words: Windeln.de obviously needs fresh money. The notification of loss was by no means voluntary. Rather, Windeln.de thus complied with an obligation imposed by the legislator: Companies must inform if losses have exceeded a critical limit and there is an urgent need for action.

“Flagpole” as a warning signal

The course of the Windeln.de share seems all the more absurd. Experts speak of such a steep, almost vertical rise in price “Flagpole”. Many stock market beginners are attracted and seduced by such price patterns. One would have loved to have this share, since it would have enabled one to multiply one’s capital in a very short time.

The so-called “Flagpole” is clearly visible in the Windeln.de chart. Image: tagesschau.de For technical analysts, i.e. stock market experts who analyze price developments and other market data, this is the “Flagpole” but one thing above all: symbol of an exaggeration phase on the stock markets – and thus a clear warning signal. The Federal Association of Consumer Organizations (VZBV) is also critical of the current price developments at Windeln.de, Nanogate, Clover Health, Gamestop and other stocks with particularly noticeable highs: “This has nothing to do with investing, it is pure speculation”, said Christian Ahlers, speaker in the financial market team tagesschau.de .

A “Fireworks” of investor errors

At Mojmir Hlinka from the Swiss asset manager AGFIF International, the alarm bells are ringing when stocks like Gamestop or Windeln.de are mentioned: “These are pure speculative objects, without any substance.” The Swiss expert makes a whole in this context “Fireworks” on the basis of typical investor errors, especially the neglect of the likelihood that certain events can occur. Experts speak of “neglect of probability”. “The tiny probability of making a profit on such stocks is massively overestimated by investors. In contrast, the great probability of a loss is clearly undervalued”, told Hlinka tagesschau.de .

When emotions are involved

Hlinka’s perspective on the markets is a special one, as he operates asset management on the basis of the so-called “Behavioral Finance”. This economic research direction is based on the findings of the psychologists Daniel Kahnemann and Amos Tversky. Accordingly, the investor does not act rationally, but is controlled by his emotions and typical behavioral patterns. As a result, he makes mistakes that reduce his profits. Such a typical mistake has a lot to do with paying attention to certain papers. “These stocks are widely reported in the media, especially on social media”, emphasizes AGFIF expert Hlinka. “This means that more information is available to them more easily. That automatically makes them more interesting for investors.”

Social media fuel herd instinct

Another problem for the normal investor is the herd instinct: Many people like to do what the masses do. “This phenomenon can be observed in any stock market hype. People feel safer in the herd”, emphasizes Hlinka. “Investors’ herd instinct is currently controlled primarily via social media. Quasi real sects are forming in the investor forums.” Consumer advice center expert Ahlers is similarly critical and warns: “Tip givers and sellers can also be found in social networks, who may do more than exchange investor experiences and may also advertise dubious investments.”

Financial regulators advise caution

The German financial supervisory authority BaFin has now recognized this: “BaFin advises all investors to check the information provided on social media very carefully with the help of other sources”According to the agency’s website. “Chat groups in social networks are often only used to entice investors to buy certain stocks so that the senders can benefit from the rising prices of these stocks.” As new as the influence of social media on share prices may be, the mechanisms behind the current excitement about papers like Windeln.de have been well known for centuries. The first big hot topic in financial history was tulip bulbs. Numerous other bubbles followed – from railways, the South Seas, the Internet industry to US real estate, to name a few. “Each of these bubbles has burst so far”, says Hlinka. “History has proven that. At some point this hype will also burst.”

Massive price drops

Perhaps the bursting of the bubble has already begun with a look at some of the shares: Today the Windeln.de share rushes down by up to 35 percent. Clover Health stocks fell 24 percent on the Nasdaq yesterday. When exactly a bubble will burst is difficult or even impossible to predict, even for experts. But the stock exchange world has also found a technical term for this: the “Greater Fool Hypothesis”, according to which prices will continue to rise as long as there is one in the market “even bigger fools” there who pays even more.

From Massimo Bognanni, WDR The email that popped up on May 7, 2007 at 10:07 a.m. on the screen of an employee of the BaFin banking supervisory authority came from the world of big money. A whistleblower answered with confidential information, apparently from within the financial industry. The whistleblower sent BaFin a five-page document. Possibly, wrote the whistleblower, the banking supervisory authorities were interested. After all, it is about huge share deals that would have cost the German state hundreds of millions of euros in previous years. For many years, this entry was kept in the BaFin’s portfolio as a secret. She did not forward the notice to law enforcement officers or tax investigators. WDR , “Süddeutsche Zeitung” (SZ) and the Dutch investigative platform “Follow The Money” (FTM) were now able to view the relevant BaFin documents. A picture of a banking supervisory authority comes to light, which apparently could be fobbed off with the information of an affected financial institution. The financial overseers meanwhile in the criticism because of the Wirecard scandal , therefore also play a dubious role in the cum-ex tax scandal.

Could Cum-Ex have been discovered in 2007?

The notice from 2007 was even suitable to blow up the global cum-ex industry, which was still undiscovered at the time. An industry where bankers, stock traders, and advisors used complex stock deals to recover taxes that no one had paid before. Their booty is estimated at ten billion euros – just at German tax money . Billions that the state urgently needed in recent years for schools, daycare centers, health and social care, for modern infrastructure, affordable housing and much more. Specifically, the whistleblower stabbed through details in 2007 about alleged cum-ex deals, in which the then powerful and scandalous North Rhine-Westphalian state bank WestLB is said to have been involved. A document in English from inside the Belgian-Dutch Fortis Bank was attached to the mail as evidence. In the internal report, the WDR , SZ and FTM are available, the statement of a Fortis employee is documented. The Fortis banker described transactions with which a tax could be reimbursed twice that had only been paid once. As an example, he cited a billion-euro share deal from 2004, in which those involved in Germany would have had taxes of around 100 million euros reimbursed. The NRW-Landesbank WestLB, to which taxes were ultimately paid, played an important role. The “profit” was shared among those involved: WestLB collected ten million euros itself, Fortis 60 million euros, and intermediary financial firms around 30 million euros. What he put on record with detailed knowledge and a diagram was the first concrete report of an alleged cum-ex case.

BaFin contacted the accused instead of the authorities

BaFin seemed to take the petition seriously. A supervisor noted in handwriting on the printed whistleblower email that the management had been informed. In an initial assessment, the BaFin experts stated that it could be tax evasion. But instead of involving the public prosecutor or tax investigators, BaFin informed: WestLB. In the letter dated May 11, 2007, a BaFin auditor turned to the state bank that information had been provided anonymously to him. Paragraphs from the Fortis internal report were also included. The Landesbanker learned that the clues had to come from inside Fortis – an explosive detail for a bank that might have something to hide.

This is how cum-ex and cum-cum deals work At Cum-cum In business, a domestic bank helps a foreign investor get a tax refund that the foreign investor is not entitled to. The profit is shared.
Cum-Ex -Businesses are related, but far more complicated. The specialty: a tax is paid once and reclaimed several times by the tax authorities. So a network of banks, consultants, lawyers and wealthy investors had taxes reimbursed that were never paid.

WestLB reassured BaFin

Two weeks later, WestLB gave the all-clear. The facts have been examined. Legally, they see no problems, and moreover, they have found evidence of transactions that could be classified as cum-cum transactions that are less criminally critical. A sedative pill poured in lines, as it seems today. The BaFin swallowed it – the case was apparently closed for the supervisors. On request, BaFin confirmed that the information had been “taken up by the responsible specialist department”. However, at that time the passing on of information “to other authorities, especially tax authorities” was not allowed because of the confidentiality obligations of the Banking Act. According to BaFin, this only became possible in 2015 through a change in the law. The public prosecutor’s office in Cologne, currently involved in countless cum-ex proceedings, strongly contradicts this. There is a duty of confidentiality for alleged tax evaders “neither currently nor has it existed in the past”. There were no relevant changes to the law in 2015, as a spokesman announced. Confronted with the clear announcement from Cologne, BaFin remains silent.

Investigations only nine years later

The fact that there were investigations into the WestLB and Cum-Ex matters was due to the purchase of a so-called tax CD years later. In 2015, the NRW Ministry of Finance bought the information from another Cum-Ex-Insider for five million euros. Among the banks listed there: WestLB. Nine years after the information from the BaFin whistleblower, the Düsseldorf public prosecutor initiated investigations against former WestLB board members. She recently handed over the procedure to Cologne, where it continues to this day. The tax authorities are one step further in the WestLB case. The Düsseldorf tax office demanded from the legal successor of the now insolvent WestLB, the Portigon, back tax money of more than 450 million euros because of the entanglement in cum-ex deals . Portigon has lodged an objection – and tries to pass some of the costs on to the processing company EEA. On request, Portigon stated: “Without the means and options available only to the public prosecutor and tax investigators, it was neither in 2007 nor today for WestLB or Portigon whether it was a critical transaction.”

Ministry of Finance: Events have been dealt with

The Federal Ministry of Finance considers the whistleblower events of 2007 to have already been “processed” by the Cum-Ex investigation committee. In fact, in 2017 the then Green MP Gerhard Schick brought the relevant documents to the committee. But even there they were classified as “trade secrets” – and their explosive content was never made public. Schick, meanwhile board member of the non-governmental organization “Finanzwende”, is relieved that the events of 2007 are still public: “It was hard to bear how long BaFin could publicly claim that it could not have done anything. That was grossly misleading the public.” The obligation of secrecy for these documents in the committee of inquiry would have protected people who had failed miserably, “be it in the financial supervision or in the committees of WestLB”.

The German financial regulator BaFin is examining possible stock speculation by employees at the authority. In a total of two cases, BaFin is investigating the question of whether the reported private financial transactions are to be classified as speculative, said the Federal Ministry of Finance. Two people are affected. The ministry responded to a request from Fabio de Masi, the left wing’s financial expert in the Bundestag. The deals were noticed during an investigation of employee deals with shares in the US companies Gamestop and AMC Entertainment. The federal government pointed out that Gamestop and AMC are US companies and that shares in these companies are not subject to the BaFin’s trade ban for private financial transactions. These companies are also not subject to BaFin’s corporate supervision.

Purely speculative business is prohibited

Basically, trading in these shares would be permitted for BaFin employees. However, this does not apply if it is speculative business, because such private business has no longer been allowed in the authority since October 16, 2020. If the two employees actually carried out such transactions, this would be unacceptable from the point of view of BaFin and the ministry. At BaFin, “speculative transactions” means short-term trading in the market – for example with derivative financial instruments or shares. When speculating, the focus is on short-term gains, while an investment aims to achieve long-term returns.

Course capers at Gamestop

The The US video game retailer Gamestop’s price capers had kept the stock exchanges in suspense for weeks. There was also speculation with shares in the AMC cinema chain. The value of the shares had increased significantly in some cases. At Gamestop, for example, small investors with concerted purchases forced hedge funds to cancel their bets on a collapse in the price of the securities. That drove the price higher as the hedge funds were forced to stock up on Gamestop stocks. But then profits melted again. Anyone who happened to hit the right time could still rake in massive price gains. These had nothing to do with the company’s economic or business success – it was a pure bet. As a retailer in the games industry, Gamestop has long been under pressure as the business is increasingly shifting to the Internet.