Germany's Ties to Lehman

In a written response to the liberal FDP party's parliamentary group, the German government revealed on Thursday that 44.5 million euros was placed by a retirement fund with the US bank's German subsidiary, and 57.55 million euros by an insurance fund that covers work accidents and work-related illness.

In all, the government estimated that German banks had committed between one to five billion euros to investments with Lehman Brothers.

However, spokesmen for the government as well as the insurance companies stressed that the money had not been lost and that it was covered by a fund created by a federation of private German banks.

Lehman Brothers declared bankruptcy on September 15, the same day that KfW, the German state-owned development bank, transferred more than 300 million euros to it. That transaction is under investigation.

The government's letter noted that Lehman Brothers' German subsidiary is not officially bankrupt.

String of embarrassing financial news

But the news is an embarrassing blow to Germany, a week after it announced a 500-billion-euro rescue package for its troubled banks and after repeated assurances by lawmakers that its banks were not exposed to the failure of US financial giants.

It comes on the heels of a string of damaging revelations at state-owned banks which have been the first to line up to tap the government bailout.

On Thursday, German news agency dpa cited sources saying Michael Kemmer, CEO of Bavaria's regional Bayern LB bank is to step down following huge losses at the bank, incurred because of its deep involvement he bank in asset-backed securities. These securities lost much of their value when the US market for high-risk mortgages collapsed in 2007. As the bank was recovering from this loss, it was hit a second time when interbank loans dried up in mid-September.

Reports of Kemmer's resignation come just one day after Bavarian Finance Minister and head of BayernLB's supervisory board Erwin Huber said he was quitting.

BayernLB became the first German financial house to apply for aid this week when it asked for 5.4 billion euros from Berlin's bank rescue plan.

BayernLB also announced Wednesday it was launching a review of all its costs, including the the bank's 19,000 world-wide labor force with the bank having already warned that it might not be able to avoid job cuts.

Former IKB execs also feeling the pain

But managers at Bayern LB aren't the only ones to be feeling the heat of the financial meltdown.

Former executives at German bank IKB have been told to pay back bonuses worth millions of euros that they earned before the bank had to be rescued by the government, a spokesman for the bank said Thursday.

The bank, which specializes in corporate loans, has told six bankers to return a total of three million euros (3.9 million dollars), according to Agence France Presse.

"A new assessment of the bank's accounts for the period 2006-7 has shown the good financial performances that these bonuses were based to be invalid," the spokesman told AFP.

The executives include former chief executive Stefan Ortseifen who has been told to pay back 805,000 euros (1 million dollars). Though he quit in July, he is also being sued by the bank over his actions leading up to a government-led rescue earlier this year.

Two others have been told that they have until the end of the month to pay back the money, while a third -- reportedly still on IKB's board -- has already returned 558,000 euros (730,980 dollars).

IKB, which had invested heavily in toxic securities linked to subprime mortgages, became the first big casualty of the subprime crisis in Germany. It had to be rescued with several billion euros of public money in July -- the same month in which the bonuses were paid out, according to the daily newspaper Sueddeutsche Zeitung.