WestLB lost $820M on German share bets — the trade that began the bank's dismantling

WestLB (Westdeutsche Landesbank) was a German state-owned bank based in North Rhine-Westphalia, one of Germany's largest Landesbanken. It operated a proprietary trading desk that speculated with the bank's own capital.

In the first half of 2007, WestLB's trading desk made massive bets on the price gap between common and preferred shares of German blue-chip companies including Volkswagen, BMW, and Metro. The strategy went disastrously wrong, and the bank reported a loss of approximately €604 million ($820 million) from proprietary trading.

The loss was so large that it triggered the beginning of the end for WestLB. The bank had already been weakened by the subprime crisis, and the trading loss destroyed confidence. Germany's financial regulator BaFin launched an investigation, and seven current and former executives were investigated for violating corporate law. CEO Thomas Fischer resigned in July 2007.

WestLB was eventually dismantled. Its brand was given up in 2012, remaining operations were transferred to Portigon Financial Services AG, and a 'bad bank' (Erste Abwicklungsanstalt) was created to handle €85 billion in problem assets. The $820 million trading loss was the first domino in the bank's collapse.