The guarantee provided by the Financial Markets Stabilization Fund (SoFFin) will cover a bank bond that HRE will use as collateral to get cash from the central Bundesbank. HRE needs the funds to maintain current operations. It is the first private German financial institution to take advantage of a government package offering up to €400 billion in loan guarantees and up to €80 billion in capital injections.
German regional bank BayernLB has also applied for the aid, with a request for €5.4 billion, while other regional banks have said they are mulling requests as well.
In morning trading on the Frankfurt stock exchange, HRE shares slipped by 0.76 percent to €5.23, while the Dax index of German blue-chips was off by 1.44 percent overall.
The real estate specialist was caught in a liquidity crunch which worsened after US investment bank Lehman Brothers declared bankruptcy in September. HRE is already the subject of a rescue plan worked out by the government, the German central bank and a financing consortium worth €50 billion, and the short-term guarantee unveiled late on Thursday will keep HRE going until the full sum is available. “It is envisaged to provide the full extent of liquidity facilities by mid-November,” a statement said.
The HRE rescue earlier this month was the biggest in German history and came after the real-estate lender was drawn into global financial turmoil, through its inability to refinance debt, one of several high-profile European emergency cases.
HRE was hobbled by debts incurred by a German-Irish subsidiary, Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for high-risk, or subprime, mortgages.
Depfa specialises in the financing of public works projects. The parent real-estate bank found itself unable to refinance operations owing to a credit squeeze that worsened after Lehman Brothers declared bankruptcy on September 15.