Hypo Real Estate bailed out

The German real estate and infrastructure lender announced a multi-billion euro credit facility today to shield it from disaster. It was enough, Hypo said, to cover its funding needs “well into the future”. Shares crashed 70 percent on the news.

Hypo Real Estate, the German real estate lender, saw its shares crash 70 percent today after revealing a bail out facility had been agreed with other German institutions.

The troubled bank said a consortium from the “German financial sector” had provided it and subsidiary DEPFA bank with the facility, the size of which was not disclosed. However, the Financial Times reported it as being €35 billion ($50 billion).
Georg Funke, chief executive, said in a statement that the credit facility would allow Hypo to adjust its funding structure in order to “accommodate the current malfunctioning” of the international money markets. “Hypo Real Estate will not need to go back to the unsecured money market for its refunding in the foreseeable future,” he added.

The arrangement will lead to a write-down on the goodwill in DEPFA, the Ireland-based infrastructure lending bank it took over for €5.7 billion last October. The impairment will hit Hypo’s profit and loss statement, it said, and shareholders will receive no dividend this year, it added.

The shock bail out announcement caused shares in the group to crash to a 52-week low on the Frankfurt exchange of €3.80 per share at one point. It is a huge fall for the bank whose shares were trading as high as €50 at the beginning of last year.

News about Hypo comes just a week before it is due to host a huge stand at the Expo Real property trade fair in Munich. The share price tumble also came as shareholders digested other negative news in the European financial sector, as UK building society Bradford & Bingley announced it was being nationalized and Fortis, the Benelux bank, revealed it was being part-nationalized via a €11.2 billion Government capital injection. Eurohypo, which like Hypo is a major international real estate lender, saw its shares fall 17 percent to €12 amid sapped banking confidence.

Hypo’s profits collapsed to €40 million in the second quarter of the year from €320 million in 2007, but it has continued to lend to property investors. In the last few weeks alone it has announced a $130 million loan to luxury retail property investor Metropole Realty Advisors for the acquisition of 681 Fifth Avenue in New York, a €264 million facility to ProLogis European Property Fund II for the Denver-based company to refinance 34 distribution properties in Central Europe, and a €241 million provision for US firm Oaktree to refinance 47 German properties which Oaktree acquired from DEKA Fonds in 2006.

Also recently Hypo announced new board members following the sale of a 24 percent stake in the group to US private equity firm JC Flowers, Japanese bank Shinsei and Grove International, the private equity real estate firm led by Richard Mully and Richard Georgi. The consortium paid around €1.1 billion at €22.50 per share. By 2pm today, shares in Hypo were trading at less than a fifth of that value.

Earlier this month, Hypo also announced a deal to sell its asset management subsidiary Collineo to family-owned bank, Sal. Oppenheim.