German banks in €50bn Hypo bailout

The German government and financial institutions have agreed to a second financial rescue package for German real estate lender Hypo Real Estate. It follows on the breakdown over the weekend of the initial €35 billion bailout scheme.

A consortium of banks is providing €50 billion to bail out troubled German commercial mortgage lender Hypo Real Estate.

The news follows on the failure of the initial €35 billion rescue package promised last week to the real estate lender. The financial package involved a liquidity line to be provided by a consortium of financial institutions and extending into 2009, according to Hypo. However the consortium of banks pulled out of the plan over the weekend.

The new scheme increased the financial package to €50 billion, provided by a consortium of other banks. “We will not let problems at one financial institute spiral into a crisis of the entire system,” German chancellor Angela Merkel said Sunday.

The German government was to provide an approximate €26 billion credit guarantee for the initial €35 billion financial rescue package, which it said would not be increased under the new plan. The initial bailout for Hypo fell apart after other banks found its liquidity needs were “much greater” than the proposed €35 billion, according to a Financial Times report.

Last week, Hypo issued a statement saying it was not to be “dismantled” or “wound down”. The statement was made in response to media coverage believed to have misinterpreted comments by the German finance ministry.

“The Bank wishes to make it clear that there is absolutely no intention or agreement by either the bank’s management board or the bank’s supervisory board to dismantle or wind-down Hypo Real Estate Bank,” it said. “The Bank believes that the reports are based on a misinterpretation of the statement by the German Finance Ministry. The bank has agreed to reduce its assets by €50 billion but in an orderly way, without deadline and without fire sales”.

Hypo also revealed last week that Bo Heide-Ottosen, a board member and the man responsible for long term funding and treasury within its Dublin-based infrastructure and public lending subsidiary, DEPFA, had resigned with immediate effect. DEPFA’s chief executive officer, Paul Leatherdale, also left with immediate effect.