Cum-ex damages bring down North Channel Bank

In Mainz one knows one Dane in particular. Bo Svensson, coach of the football club FSV Mainz 05, has been living in the city with his family for almost two decades. His compatriot Jeppe Bruus and the “Skatministeriet”, on the other hand, should only be known to prosecutors and Bafin employees. The social democrat has been tax minister in Denmark for about a year, so his departmental responsibility lies with the Danish tax office “Skat”, which for several years has been taking vigorous action against those pulling the strings of a tax fraud that is now also well known: Cum-ex.

Foreign investors, mostly American pension funds, had a withholding tax refunded several times in the UK following stock transactions. The Danish tax authorities estimate the damage at at least 1.7 billion euros, and there are also complaints about a loss of tax in Belgium.

In the focus of investigators

Since 2017, the small private bank North Channel Bank, based in Mainz, has been the focus of Danish tax officials, German public prosecutors and the financial supervisory authority Bafin. According to investigators from Denmark, the bank was involved in cum-ex deals between 2012 and 2015, which in turn benefited US pension funds. On Thursday afternoon, the banking regulator pulled the ripcord. With immediate effect, it issued a ban on the sale and payment of North Channel Bank due to the threat of over-indebtedness (FAZ of January 13). It also closed the bank to customers and banned it from accepting payments other than to pay off debts owed to North Channel Bank. The moratorium had to be ordered in order to secure the assets in an orderly process, the bank supervisors explained in their statement: “The bank is chronically in deficit and no longer has a sustainable business model.”

North Channel has been subject to significant restrictions on lending to customers since August 2021. After maple bank from Frankfurt and Munich’s Dero Bank, it is the third bank to file for bankruptcy in the cum-ex scandal. The reasons are claims for damages of over 176 million euros from Denmark, and a few weeks ago a purchase investor jumped off.

“After the sale of North Channel Bank at the end of the year and further negotiations regarding a voluntary liquidation of the bank failed and the bank’s shielding against the risks from the cum-ex procedure was revived, Bafin imposed a moratorium,” said a spokeswoman for North Channel Bank. At the same time, the management issued an insolvency notice with a similar justification and is now supporting planned insolvency proceedings.

Insolvency scenario known for a long time

As can be seen from North Channel Bank’s 2020 annual financial statements, which were published in the Federal Gazette, the managing directors had been anticipating an insolvency scenario for some time. The bank, whose total assets amounted to 123.5 million euros at the end of November, was confronted with the high claims for damages from Copenhagen before the High Court of Justice in London. A major Danish law firm also announced the dispute to the private bank in Mainz.

In view of the long civil law dispute before the Court of Justice, the Danish Ministry of Taxes agreed to a settlement. The compromise stipulated that the claim for damages should be suspended on condition that the bank was sold to a new owner. Belgium joined the agreement. There was hope for a turnaround: an unnamed investor had already signed a letter of intent to buy North Channel Bank in December 2021.

There was also movement on the criminal procedural side. Administrative offense proceedings against the bank itself were discontinued by German public prosecutors. A criminal chamber at the Koblenz Regional Court did not allow the charges against the former management and other bank employees for alleged money laundering at the end of November 2022. But shortly afterwards the sale failed – and since North Channel Bank “is not in a position to pay damages in the amount claimed”, the Bafin considered the moratorium to secure liquidity and limit risk to be necessary.

Discomfort in Berlin

In Berlin, the news should be out Mainz cause uneasiness at the Association of German Banks (BdB): Because the liquidation weakens the statutory compensation scheme and the deposit protection fund of the private banks again. The deposits of the approximately 500 customers of North Channel Bank are estimated in financial circles between 50 and 60 million euros. This sum will not overwhelm the banking association’s protection systems, but the main depositors, Deutsche Bank and Commerzbank, have been upset about the claims not only since the collapse of Greensill Bank. For this reason, the BdB reformed the deposit insurance again in December 2021 and further reduced the scope of protection for customers.

That was already necessary after the collapse of Maple Bank in 2017. Greensill had cost the BdB a total of 3 billion euros. Its auditing association, which examines the members of the deposit insurance and determines the contributions depending on the risks, was also criticized. In the future, the auditing association is to become more effective.

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