Hypo Real Estate expects heavy charges

German property lender Hypo Real Estate expects to suffer heavy charges in 2009 after flirting with bankruptcy this year, the bank said in a statement on Monday.

Hypo Real Estate expects heavy charges
A Hypo Real Estate building reflected in a puddle. Photo: DPA

Hypo Real Estate (HRE), which suffered a net loss of €3.052 billion ($3.8 billion) in the third quarter, expects “an extremely negative consolidated result for the whole of 2008,” a statement quoted financial director Markus Fell as saying. The statement confirmed third-quarter results initially announced on November 12. It preceded a separate statement saying that eight members of the bank’s supervisory board had resigned.

Fell said that “the necessary restructuring of the Hypo Real Estate Group and the costs of the agreed or planned liquidity lines and capital assistance will continue to pose a major strain on consolidated result in 2009.”

HRE was saved from bankruptcy by a public-private rescue package worth €50 billion and suffered most of its losses through its Depfa subsidiary, which had extensive dealings with bankrupt US investment bank Lehman Brothers. It has also obtained a €15 billion state loan guarantee under a government rescue plan for the banking sector.

In the third quarter, HRE was forced to devalue Depfa assets by €2.48 billion “The tremendous force which hit the Hypo Real Estate Group as a result of the unparalleled financial crisis can clearly be seen in the figures for the period ending 30 September,” Fell said.

HRE directors are working under the supervision of the German government and central bank to reposition the group, aiming to establish a group which is “more strongly integrated and less complex,” the statement said. “For the time being, the Hypo Real Estate Group will not be able to adequately refinance the company via the money and capital markets alone, even if this is of course our objective in the medium term,” chief executive Axel Wieandt was quoted as saying.

In a separate statement, the bank announced that eight members of its supervisory board, including its president, had resigned. Former German central bank governor Hans Tietmeyer also submitted a resignation. The former head of HRE, Georg Funke, had already been forced out owing to the bank’s desperate situation.

However, three board members who represent US investment fund JC Flowers, which owns around 24 percent of HRE, are to stay on.


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.