Germany woke up to its biggest corporate failure in five years yesterday as bank talks to finance a rescue of Philipp Holzmann AG, the country's second largest builder, collapsed in bitter acrimony.
Holzmann now can no longer pay the wages of its 28,000 workers, must cease construction at 1,200 building sites and may be split up or taken over, its chief executive, Mr Heinrich Binder, said after 15 hours of talks with 20 banks.
The builder had asked banks to accept a 4.3 billion deutschmark ($2.26 billion) rescue package after discovering DM2.4 billion in potential losses from old projects. It blamed "massive" breaches of duty by former managers. Prosecutors have begun an investigation.
But banks failed to resolve a dispute about burden-sharing.
"We just didn't get quite enough," Mr Binder said, referring to the support it had sought from banks. "We had a gigantic financing gap and the banks couldn't agree to cover it."
Deutsche Bank AG, Holzmann's largest creditor owed about two billion deutschmarks, blamed the other 19 major creditors, including Commerzbank AG, for the failure of the talks.
"We would have wished for more flexibility from Commerzbank," Deutsche management board member Mr Carl von Boehm-Bezing, who is also Holzmann supervisory board chairman, told a news conference after the all-night talks.
Commerzbank struck back in a mid-morning statement, strongly rejecting Deutsche's suggestion it had not pulled its weight and turning the tables back on Deutsche Bank.
The case echoes the fraudulent collapse of the Schneider real estate group in 1994 which, like Holzmann, got stung by a slump in property prices after Germany's post-unification boom.
Shareholders, aghast at how Holzmann's losses could remain undetected for so long, have said the bank should have prevented the trouble in the first place. The shares, which had been suspended since last week, remained suspended yesterday. Holzmann has about 15,000 small shareholders. Belgian holding company Gevaert, the biggest shareholder with a 30 per cent stake, said it was considering legal action against "all third parties that contributed to the collapse," including Holzmann, creditors and any other related parties.
Deep rifts among the creditors had emerged ahead of the talks as several banks insisted that Deutsche, Holzmann's main creditor and 15 per cent shareholder, bears the brunt of the rescue package.
Under German law Holzmann must now immediately file for insolvency. One of the options is that it be put under the control of a financial administrator and carry on with the help of a bridging loan to enable it to pay its bills.
Deutsche said it would contribute towards a new loan required for Holzmann to continue working.
About one hundred executives from Holzmann's 20 core banks, including virtually all of Germany's top banks, had negotiated with Holzmann officials in one of Frankfurt's finest hotels, the Frankfurter Hof, which ironically was built by Holzmann.
Holzmann has warned that up to 70,000 jobs are at risk if it is allowed to fail - 28,000 jobs at Holzmann and 30,000 to 40,000 jobs at Holzmann's suppliers and partners.
