Volksbank Brawo said Tuesday it will receive support of up to €723 million, or $834 million, after uncovering large writedowns tied to a broad portfolio of investments. The bank identified about €608 million in potential losses across assets spanning corporate credit and equity positions as well as real estate.
Accumulated during the tenure of former CEO Juergen Brinkmann, the portfolio featured an ownership interest in a gym chain, restaurant stakes, a brewery that later went insolvent, and a luxury villa project on Mallorca. Brinkmann was removed from his post earlier this year. At year end, Brawo's assets were €6.5 billion, compared with Deutsche Bank AG's roughly €1.4 trillion balance sheet - more than 200 times larger.
Germany's cooperative network is providing the lifeline via its mutual protection fund. As part of the package, Volksbank Brawo will receive €473 million in guarantees from the network's collective rescue fund, which may also take an equity stake of up to €250 million. The eventual size of that stake could yet be altered.
According to Brawo, a "fundamentally overhauled" revamp of its business model and strategy is coming, and it noted that around 96% of the writedowns stem from activities outside its core banking operations.
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Brawo is one of several cooperative lenders that have sought help in recent years. Many expanded into riskier loans and investments after the 2008 crisis, then ran into problems when rates jumped fast in 2022, raising defaults and knocking asset values. A few weeks ago, Volksbank Kleverland requested support following an internal assessment of its credit portfolio; it had already released its CEO of his duties last year and later fired him.
Recipients have included VR-Bank Bad Salzungen Schmalkalden - since rebranded and noted for bringing on a former star soccer player to court business from sports clubs - as well as Bankhaus RSA, where more than a third of loans deteriorated. Even with these issues, the group led by umbrella institution DZ Bank generated €11.6 billion before taxes last year on a combined balance sheet of about €1.7 trillion. In June, the network approved a major reform of its protection system to strengthen intervention powers at individual lenders or make it easier to expel members.
For a bank with €6.5 billion in assets, this is a sizable reset. These cooperatives are structured so that customers purchase a small stake to become owners, and the network counts over 17 million people as members, making the sector's protection scheme and the June rule changes consequential far beyond a single troubled portfolio. Keep an eye on how large the eventual equity stake ends up, how fast the overhaul takes shape, and whether more co-ops step forward for help.
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