Numbers Games – The Magic of Great Numbers – Example: InterFace AG and BayernLB

Today, I will try and explain to economists and bankers about a few billion Euros …

Let me exemplify my numbers with BayernLB. Owning the Kärntner Hypo Group Alpe Adria between 2007 and 2009 cost BayernLB 3.7 billion Euros (click on the link and you find the “Bavarian TV” – and I would strongly recommend you read what you find there).

So far, no details have been revealed, but here and there you read some interesting bits and pieces. For example, Alpe Adria allegedly financed 400 very special yachts. All of a sudden, however, it turns out that those ships do not even exist. They vanished into thin air, and without the Bermuda Triangle at that.
However, this is not what my article is about. What is interesting for me is: how much money is 3.7 billion Euros?

Neither do I wish to show how high a column you would get if, for instance, you would pile up 100-Euro bills to the total tune of 3.7 billion. Instead, I want to analyse how many people and enterprises you need in order to make good on the damage.

Let me take the InterFace AG as an example for a nicely running enterprise. Let us assume, just for reasons of theoretical mathematics, that we had a turnover of 10 million Euros per annum (in 2009, we actually did a lot better than that) and an 
Ebit of one million (it is not something you talk about). Now let us further assume that this exceedingly good result was achieved by 100 very highly educated people.

In order to generate a turnover of 3.7 billion, we would then need 370 companies such as InterFace AG. In other words, 37,000 people would have to work really hard and successfully.

However, the turnover is no suitable agent for neutralizing damage. If anything, the only numbers we might consider are those shown in the EBIT. That means I would need 3,700 flourishing medium-size companies with 370,000 highly educated and extremely motivated employees in Bavaria!

If I continue to do the mathematics, the numbers get worse and worse. After all, the final result of the enterprise after tax is a lot less than the EBIT (and the country badly needs the taxpayer’s money, even without BayernLB). Moreover, a good medium-size enterprise always keeps some of his overflow as backup.

Consequently, all that would remain for neutralizing the damage is about 1/4 of the EBIT. In other words: you will have to multiply the numbers by four:

In order to neutralize the damager, I would realistically need 14,800 top enterprises with 1,480,000 highly qualified employees. In order to get this kind of material, you have to take quite a few cities together: Munich, Nuremberg, Augsburg, Würzburg, Ingolstadt, Rosenheim …?

On reading this, you will probably counter by telling me that the total damage need not be neutralized in a single year. We could take a little more time and pay back in small instalments. My answer to that would be: what about the interest that would cost? Besides, these 3.7 billion are, after all, just a part of the total damage caused by BayernLB alone, which is in the two-digit billion range.

And then there is not only Bavaria. We also have to contribute significantly to the Federal budget. Dear Bavarians, the time has come for you to really start hands on!

Perhaps this example can serve to show how much money we are talking that went foul and how significant our debt really is.

So what does our government and our Federal Chancellor do? They say growth can save the day and come up with a “growth acceleration law”. And our prime minister, Herr Seehofer, said a short time ago that he takes it as a foregone conclusion that the BayernLB must be able to pay back all the (two-digit?) billions aid it received from the free state of Bavaria …

Our government probably has no choice, because the situation is as it is. It might have been a good idea to think about all these consequences before saving the “system relevant” banks. That reminds me of the wisdom: if we had bought ducks, the chickens would not have drowned.

And in the Austrian district of Carinthia, every person born in 1991 gets 1,000 Euros for using it well, for instance for getting his driver’s licence. The money is from a pool for guaranteeing the future partly financed by what the sale of Hypo Group Alpe Adria rendered. Incidentally, using 3.7 billion Euros would provide exactly 3.7 million of these 1,000-Euro-presents. How many Austrians did you say there were?

(Translated by EG)

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