Merkel pushes bank rescue to avert wider financial crisis

Chancellor Angela Merkel said on Sunday her government was scrambling to salvage a rescue plan for Hypo Real Estate, saying she would not allow problems at the stricken commercial property lender to infect the entire banking system.

Merkel pushes bank rescue to avert wider financial crisis
Photo: DPA

“We won’t allow troubles at one financial institute to affect the entire system,” Merkel said on Sunday. “The German government will see to it. We owe it to the taxpayers.”

Hypo Real Estate was on the brink of collapse late on Saturday after a banking consortium withdrew from a 35-billion-euro government-backed rescue plan.

Speaking at a joint news conference in Berlin with Finance Minister Peer Steinbrück, Merkel said managers at financial institutions should be held accountable for what she termed irresponsible behaviour. The chancellor added that Germans need not fear for their investments.

Steinbrück said Hypo Real Estate has an “unforeseen liquidity gap in the billions” of euros range. He assured the government was determined to find a solution for HRE but said he was “quite appalled” that the bank’s management had not revealed the extent of its liquidity crisis earlier. The minister said the government was working on an “institution specific solution” for Hypo Real Estate.

Some analysts say the bank will not last more than a few days without a rescue package, so action must be taken before the markets open on Monday.

Earlier, Germany’s Die Welt newspaper reported that Hypo Estate’s financing needs far exceeded the bailout guarantee. Citing unnamed sources, the paper said the bank may need as much as 100 billion euros by the end of 2009.

Hypo Real Estate became the first German blue-chip company to seek a government bailout. It ran into trouble mid-September as credit froze on international markets following the collapse of US lender Lehman Brothers.


US investors buy up north German state bank hit by financial crisis

Two German states said Wednesday they would sell troubled maritime lender HSH Nordbank in the first full privatisation of one of the regionally-owned "Landesbank" lenders hit badly by the financial crisis.

US investors buy up north German state bank hit by financial crisis
Photo: DPA

Leaders from Hamburg and Schleswig-Holstein states said at a news conference they would sell their 95-percent stake for one billion euros to investors led by two US funds, J. Christopher Flowers and Cerberus capital.

The European Commission ordered a change of ownership in exchange for its approval in 2009 of a €13-billion-euro rescue – one of two taxpayer-funded bailouts for the north German bank since the 2007-2008 financial crisis.

That rescue plan helped cover risky investments amounting to €60 billion, most of them in real estate and the shipping sector, which HSH built up in the pre-crisis years.

“Today we've reached an important milestone on the way to selling the states' holdings in HSH,” which had over the years proved “very costly to the taxpayer,” Schleswig-Holstein state premier Daniel Günther said.

Wednesday's deal must still earn a green light in a further competition probe by the Commission and from banking supervisors at the European Central Bank.

If it goes ahead, “the privatisation means that we can limit the damage to the states that has resulted from the bank's irresponsible strategy of expansion between 2003 and 2008,” Hamburg mayor and future federal finance minister Olaf Scholz said.

The sale was immediately criticized by Sahra Wagenknecht, leader of Die Linke (the Left Party), who described it as a gift to “the finance mafia.”

“Future profits will be privatized, tax payers will lose multiple billion euros and jobs are at risk – whoever calls that a success doesn't deserve to be finance minister,” she wrote on Twitter.

Hamburg and Schleswig-Holstein have taken on a portfolio of HSH's bad loans, meaning taxpayers could face a bill of up to €7 billion when they are eventually sold to private buyers.

The contract for Wednesday's sale also provides for HSH's payroll to be halved, to around 1,000 workers.

HSH's departure into the private sector leaves just five of the “Landesbank” lenders standing after a series of post-crisis interventions.