WestLB is being sued by Balli Group PLC for as much as Euro 500 million in damages for alleged improper conduct related to Balli's acquisition of metal distributor Kloeckner & Co, a German newspaper reported, citing Balli's lawyers. Balli claims that the German state-owned bank planned from the beginning to secure the stake for itself and sell it on for a profit. The company is now demanding that WestLB either return the stake in Kloeckner to Balli or pay Euro 500 million in damages.

Balli bought Kloeckner from E.ON AG in 2001 for Euro 1.1 billion and Balli now alleges that WestLB granted the company loans to finance the takeover even though it knew the company did not have the necessary collateral. “Neither E.ON nor WestLB nor the renowned advisors showed us the red card before the acquisition,” Balli's lawyers told the newspaper.

Balli is understood to have used at least Euro 47.5 million of KloeCo's capital to finance the acquisition before it legally owned the company. But shortly after the acquisition Balli defaulted on a Euro 175 million loan from WestLB and was forced to hand over its shares in the company to WestLB. At the end of last year WestLB sold the 94.9% in Kloeckner to Lindsay Goldberg & Bessemer for Euro 320 million.

Balli's decision to sue WestLB comes after a Duesseldorf court's ruling yesterday that Balli heads Hassan Alaghband and Vahid Alaghband breached German regulations by using KloeCo's capital to finance the takeover. The brothers Alaghband have been ordered to pay a total fine of Euro 4 million