Volksbank Brawo needs up to 720 million euros in support from the BVR

Volksbank Brawo becomes the largest known case of support for a local cooperative bank. Volksbank Braunschweig-Wolfsburg will receive 473 million euros in guarantees from the support fund of the industry association BVR. In addition, the BVR subscribes to shares worth up to 250 million euros in Brawo. The bank announced this on Tuesday morning.

Board spokesman Lars Berkefeld referred to high value adjustments on loans, securities, investments and real estate. The largest share of revaluations – 80 percent – ​​relates to the real estate business.

The preliminary result after the devaluations would have led to a loss of 608 million euros, explained Berkelfeld. The bank had liquidated reserves amounting to 136 million euros. In order to plug the financial hole and keep equity above regulatory requirements, a total of up to 720 million euros is needed.

“The current business model and business strategy must be fundamentally revised based on the enormous need for value authorization,” said Berkelfeld. According to Berkelfeld, the costs have also risen too much in recent years and are higher than at comparable Volksbanks.

Volksbank Brawo's strategy deviated greatly from the classic model of cooperative regional banks. Instead of concentrating on deposits and lending business, it has built up a wide-ranging network of investments - from real estate projects to fitness studios to restaurants and foreign commitments, for example in Mallorca.

The portfolio that was built up with investments and subsidiaries included around 400 companies. Some of these companies were and are loss-making. The fact that Diana Brinkmann, the wife of the long-standing bank boss, was managing director of the restaurant subsidiary BG Gastro also caused discontent in the cooperative financial group.

At the beginning of May, the bank fired its long-time CEO, Jürgen Brinkmann. At that time, the financial institution also announced that it was preparing an application for support from the BVR protection scheme.

In an emergency, the cooperative banks save each other and thus all customer deposits. With the high level of support for Volksbank Brawo, the total of the most recent rescue cases adds up to almost two billion euros. Therefore, the more than 600 cooperative banks had to pay more into the BVR security scheme.

Since the beginning of 2024, ten institutions have been known to need help from the BVR industry association's protection scheme. The former VR-Bank Bad Salzungen Schmalkalden, which is now called VR-Bank in North Hesse West Thuringia, received the highest amount of guarantees and subsidies to date. It received 560 million euros in grants and loans.

The affected financial institutions, some of which have already merged with neighboring banks or are about to do so, are significantly smaller than Volksbank Brawo. It recently had total assets of 6.5 billion euros, putting it in 35th place in the size ranking of the 600 cooperative banks.

During the low interest rate period in the 2010s, several rescued Volksbanks pushed forward real estate financing and other projects that are now having a negative impact. In addition, a series of questionable transactions damaged the reputation of the cooperative financial group, such as the financing of a brothel property by the Volksbank Köln Bonn.

In response to the problem cases, the BVR protection facility has now been given more rights to intervene. The cooperative financial group is also working on a code of values ​​for boards of directors and supervisory boards.