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Hypo Real Estate gets €10 bln in guarantees

AFP · 11 Feb 2009, 13:36

Published: 11 Feb 2009 13:36 GMT+01:00

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HRE said it had received fresh guarantees worth €10 billion ($12.9 billion), bringing the total of state backing for the bank's borrowing to €52 billion.

That will allow it to refinance debt which comes due on May 14, a statement said. The bank's prospects now depend on whether or not German authorities and a US investment fund agree on terms over a key shareholding.

Talks continued with Germany's state banking sector stability fund SoFFin to provide HRE with long-term cash to reinforce its capital base, HRE said. HRE benefited in October from a rescue package worth €50 billion in direct aid that was set up by the governement and a consortium of private banks.

Berlin has been mulling a privatisation of HRE for the past several weeks, but discussions have become hung up on legislative obstacles and the price to be paid to private shareholders.

Representatives of the US investment fund JC Flowers, the dominant HRE shareholder, were to meet with SoFFin officials on Thursday in Berlin, a source close to the matter told AFP.

In April, JC Flowers bought almost 25 percent of the shares in HRE for €22.50 per share.

On Wednesday they were being traded for €1.29 a share in midday Frankfurt deals, a gain of 2.38 percent from the close on Tuesday. The MDax index on which they are listed showed a loss of 0.80 percent overall.

JC Flowers seeks to sell its holding to the state for €10 per share to limit its losses, the Financial Times Deutschland reported on Wednesday. A spokesman for the US fund was not immediately available for comment.

At the same time, a mooted law that would pave the way for expropriation of HRE shareholders has divided the ruling coalition in Berlin. The legislation is backed by social democratic Finance Minister Peer Steinbrück, but opposed by conservatives who say it would damage the tradition of private shareholding in Germany.

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Earlier this month, a spokesman for conservative Chancellor Angela Merkel said she felt that nationalising the bank must only be seen as "a last resort."

The banking sector considers HRE a kind of "German Lehman Brothers" that could provoke a chain reaction if forced to declare bankruptcy. The global financial crisis worsened immediately in September after the US investment bank Lehman Brothers was allowed to fail.

In addition to its real-estate activities, HRE plays a major role in the issuance of Pfandbriefe bonds in which small investors, savings banks and insurance companies have placed large sums. And no German bank has been nationalised since the federal republic was created 60 years ago.

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