Germany Fails in Effort To Keep Builder Afloat

The German construction company Philipp Holzmann AG filed for insolvency Tuesday after last-minute intervention by Chancellor Gerhard Schroeder failed to convince banks to support a 4.3 billion Deutsche mark bailout.

Mr. Schroeder, fearful that tens of thousands of jobs were at stake if the

nation's second-largest builder collapsed, promised not to give up his efforts to keep the company alive in some fashion.

The chancellor pledged to fly to Frankfurt on Wednesday to convene another emergency meeting of Holzmann's creditors, even after three previous gatherings of bankers ended without result.

The frantic effort reflected a broader fight to save Germany's revered system of consensus among industry, banks, unions and government. Many Germans, who credit the system for the country's postwar economic rebirth, see the failure of banks to support Holzmann as a breakdown of what has come to be known as "Rheinland" capitalism.

"The end of an era," the newsweekly Der Spiegel commented this week, lamenting a new epoch in which shareholders and global markets, not unions or politicians, determine the fate of jobs and companies.

Mr. Schroeder also sounded unwilling to go easily into this new and harsher era.

"I am just not ready to accept that a company that is still a going concern should go bust because of a mistake made by its management," Mr. Schroeder told reporters. "It is the government's role to ensure that does not happen."

Through the weekend, Mr. Schroeder had been unequivocal in his comments on Holzmann, and it was only after talks among the bankers collapsed Monday at dawn that he stepped directly into the effort to save the company.

Mr. Schroeder dispatched a senior aide, Hans Martin Bury, to Frankfurt late Monday to try to push the banks to refinance the debt-laden builder. After those talks collapsed, Mr. Bury blamed the banks for a lack of "courage."

"This was not a glamorous day for the Frankfurt banking community," Mr. Bury said.

After that failure, Holzmann, which built dozens of German landmarks including the original Reichstag building in Berlin, began liquidation proceedings Tuesday morning in a municipal court in Frankfurt.

Holzmann's stock crashed Tuesday after it resumed trading for the first time since the crisis began last week. Shares plummeted to just €22.55 ($23.22) from €126 before a six-day trading suspension.

"Despite this, the goal of Philipp Holzmann remains to continue to operate as many operations as possible," the company said.

One proposal to preserve jobs would be the creation of a new holding company to shelter viable operations. At a news conference late Tuesday, the company's chief executive, Heinrich Binder, vowed that Holzmann would re-emerge in some form, saying the insolvency proceedings were not "the end."

Still, the company's woes are causing alarm throughout the German economy. The Frankfurt Chamber of Commerce said, "With the halt in payments to midsize suppliers, other insolvencies are feared."

In the Bundestag in Berlin, a senior lawmaker in Mr. Schroeder's Social Democratic Party, Joachim Poss, suggested that Parliament create a guaranteed loan of 300 million DM ($157.9 million). In Frankfurt, where Holzmann is based, the mayor pledged 150 million DM in fresh credit.

Economics Minister Werner Mueller and Roland Koch, premier of Holzmann's home state of Hesse, both promised to provide financial support to the supplier firms that were vulnerable if Holzmann could not pay its bills.

The Berlin government tried to shift blame for Holzmann's collapse onto the banks, but came under immediate scrutiny for its role. "Chancellor, what do you have to say?" thundered the mass-circulation Bild newspaper on its front page. "Do not leave them in the lurch!" the newspaper urged, referring to Holzmann's 28,000 employees.

Holzmann's losses stem from a prolonged recession in the East German construction industry. Holzmann accumulated a vast portfolio of real estate loans in the early 1990s on the assumption that Eastern Germany's dilapidated infrastructure would keep its order books filled for at least a decade.

But the speculative construction boom, fueled by an array of tax breaks meant to help Eastern Germany, proved short-lived. Buildings went up without tenants.

Holzmann, which financed many of its projects itself, slipped into losses by 1995. A change in management in 1997 failed to turn around its fortunes. Holzmann has pinned the blame for its problems on the previous management, and state prosecutors have mounted an investigation.