Bad bank pushed into red by Greek debt cut

The "bad bank" of German state-owned lender Hypo Real Estate said Tuesday that writedowns on its holdings of Greek bonds pushed it deeply into the red in the first six months of this year.

Bad bank pushed into red by Greek debt cut
Photo: DPA

FMS Wertmanagement, which is in charge of the porftolio of toxic assets from Hypo Real Estate, said in a statement it booked a net loss of €690 million ($944 million) in the six months to June after taking a charge of €808 million on its holdings of Greek bonds.

“Not considering the writedowns on the Greece portfolio, FMS Wertmanagement would have generated positive income of €118 million from ordinary business activities in the first half of 2011,” said chief risk officer, Christian Bluhm.

“We are pleased with the positive development, but we were unable to escape the effects of the international sovereign debt crisis, which intensified dramatically in the first six months – especially the problems in Greece,” Bluhm said.

The bad bank’s losses are underwritten by the German state, but the €3.9 billion pumped into it last year have practically already been used up, since FMS Wertmanagement booked a loss of €3.0 billion last year.

Thus, if further losses are incurred in the coming months, the state will have to put up more money.

As of June 30, FMS Wertmanagement held Greek government bonds with a nominal value of €7.2 billion, plus a further €1.6 billion in loans and bonds of Greek issuers.

German Chancellor Angela Merkel said Tuesday this weekend’s EU summit was an important step but that more would be needed to stem the long-term debt crisis threatening the global economy.

The summit in Brussels will aim to overcome the eurozone sovereign debt crisis, she told reporters in Berlin. But “this debt has been accumulated over years and that is why this cannot be resolved during one summit,” she said.

“Next Sunday’s EU summit will mark an important step. But more steps will then follow as the aim is to overcome a debt crisis of states” that has built up over decades, she told a news conference.

Such a crisis “cannot be ended with just one summit,” but will require “hard work over the long term,” she said.

On Sunday “we shall take important and adequate decisions which will be followed by other decisions” in the future, she added.


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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.