Hypo Real Estate gets €10 bln in guarantees

The fate of German bank Hypo Real Estate (HRE) remained in suspense on Wednesday even after it was granted new state guarantees aimed at helping it get past a financing hurdle later this year.

Hypo Real Estate gets €10 bln in guarantees
Photo: DPA

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.

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.


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.