The intention is that scandal-plagued VR-Bank Bad Salzungen Schmalkalden will remain viable. That is the goal of the special commissioner with management functions tasked with restructuring the ailing institution. Thanks to the cooperative network bank protection scheme, there is currently no need to consider a merger or winding up, Christian Gervais said in an interview with the Börsen-Zeitung.

„We still need to make some internal changes, change our risk culture, realign our corporate culture – these are things that take time", explains Gervais, who was appointed by the Federal Financial Supervisory Authority (BaFin) last December. "Of course, there may eventually be talk of a merger, but we are not currently in merger discussions. We first need to take care of ourselves.“

Gervais came in from Volksbank KölnBonn, where he worked for 20 years, most recently as head of back office and risk management. Before that he was at Deutsche Bank for 16 years. None of the original management team led by CEO Stefan Siebert, who had led VR-Bank Bad Salzungen Schmalkalden for almost 20 years and made it famous for sensational, but sometimes dubious transactions, is still in place.

Gervais now leads the bank, together with Stefanie Hermann and Harald Kothe, who were recently appointed as board members. Just a few days after Gervais took office, BaFin appointed Dirk Auerbach, CEO of the auditing firm Schalast Auerbach, as a special representative taking the supervisory board role. Previously, the entire supervisory board had resigned.

Since the election of a new supervisory board at an extraordinary general meeting at the end of March, the approval process of the supervisory board has been underway. Once completed, the new supervisory board will be constituted, and Auerbach's mandate will end. „But we are already involving the elected supervisory board as if it were in office“, says Gervais.

He explains that in March VR-Bank Bad Salzungen Schmalkalden concluded a restructuring agreement with the support scheme of the National Association of German Cooperative Banks (BVR). This shields the bank's balance sheet deficit through BVR guarantees. The deficit, caused by depreciation and write-downs on real estate, investments, and bad loans, currently amounts to around 280 million euros.

It is not ruled out that more could be added, because one or another additional risks might emerge. In any case, the deposits are safe, because never in the 90 years of the existence of the BVR bank protection scheme has a cooperative bank gone bankrupt, or a member or customer lost money.

What costs will ultimately be incurred by the cooperative financial group remains to be seen, says Gervais. „Repaying 280 million euros would certainly take decades for a bank of this size", he notes. "Whether it will end up with an agreement with the BVR or not, I cannot forecast from today's perspective.“

According to Gervais, part of the restructuring agreement also includes obligations such as stricter reporting to the BVR, and changes to the business model. „We will consolidate. We will have to reduce risks and, within the framework of a restructuring concept that we are currently developing, consider how to realign the bank in the future in order to survive in the market," he explains.

It is neither the intention of the BVR nor of BaFin to wind up the bank, Gervais insists. On the contrary. The bank should be supported through this difficult phase, „so that afterwards – though certainly initially on weaker legs – it can stand alone and recover in the medium term“.

The long-awaited annual financial statements for 2022 are now finalised. A general meeting was held in Bad Salzungen on 11 June. The agenda included technical amendments to the articles of association, though not significant issues such as a realignment of the bank. One change, for example, was the introduction of the possibility of holding virtual AGMs.

Meanwhile, work on the financial statements for the 2023 fiscal year has long been underway, which under normal circumstances should have been completed by this May. „Our goal is to present the financial statements for 2023 this year, so that we can return to the normal schedule", says Gervais. "It would be normal to start preparing for the 2024 audit in the fall.“

In the past, VR-Bank Bad Salzungen Schmalkalden was portrayed as one of the most successful cooperative banks in the Federal Republic. „But we have seen revenues that were shown but did not exist, and transactions that should not have been made," states Gervais. "Many find it difficult to acknowledge that the bank was not so successful.“

Accordingly, the special commissioner and BaFin, as well as the BVR, are being criticised by some cooperative group members. While the „Schmalkalder Initiative of the Cooperative Members" loudly opposes the institutional restructuring, and doubts the high requirement for write-offs, the majority went along with the special representative's line at the extraordinary general meeting. „Not everyone has to agree with me“, notes Gervais. "But sometimes I wish that one or other of them would also be open to argument. In any case, I am open to discussion.“

„Of course, one can question whether the bank should have engaged in one business or another", says Gervais. „It is not a problem to do a lot of business. The question is only whether the risk is manageable, whether the organisation can handle the transactions, and whether it can handle them professionally.“

Among other things, the viability of the business model and the risk appetite of the former management under Siebert's leadership were criticised by BaFin. The bone of contention was probably less the football financing, for which the bank hired former football national player Stefan Effenberg as an employee in 2018 – gaining notoriety as the "Effenberg Bank“. The former footballer no longer works for VR-Bank.

Rather, it was real estate transactions and international engagements that caught the attention of regulators. For example, the management sought to make a big splash with investments in water extraction in the autonomous monastic republic of Athos in Greece. A Cypriot company was interposed. An undertaking in which, according to media reports, 19 million euros are said to have vanished.

The real estate transactions of VR-Bank in Oberhausen also caused a stir. When it became public at the end of February that the bank's property on Flaßhofstraße included brothels, VR-Bank responded with a statement, pledging to exit the situation as quickly as possible. „I am appalled that something like this could happen in a cooperative bank“, Gervais was quoted in the statement. The properties were purchased before his appointment as special representative, between December 2021 and August 2023.

According to Gervais, the former management had significantly pushed ahead with real estate transactions over the past two years. These were proprietary transactions. „With a balance sheet total of 1.7 billion euros, the real estate in our possession amounts to approximately half a billion euros. With value adjustments of 10% to 20%, larger amounts are involved.“ As an example of revaluations, he cites four properties that are listed in the balance sheet at around 13 million euros. "However, two independent appraisers value them at only 3 million euros, which means that the remaining 10 million euros must be written off.“

An additional challenge is the loss of members and customers. The bank's website lists nearly 51,000 customers and 18,600 members, but the current numbers, which are not public, are likely lower. Gervais attributes the decline in membership to the past practice of selling the cooperative's capital, the business equity, as investments.

Some members came in with seven-figure euro amounts. If the bank doesn't pay dividends, then cancellations occur. In the difficult situation the bank is in, this is naturally problematic. "A cooperative membership is not an investment, Gervais emphasises. "Therefore, the loss of members and capital outflow are consequences of past misguided business policies.“

Despite all the adversity and challenges, Gervais enjoys his work. „I would do the job again anytime – even knowing the current situation," he says.