Hypo Real Estate expects heavy charges

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