Greek investment write-offs contributed most of the losses registered by the nationalised Hypo Real Estate “bad bank” last year, said Christian Bluhm, head of FMS Wertmanagement, which is managing the portfolio of HRE’s toxic assets.
Further billions could be lost in Italy and Spain, he admitted. “The outcome of the euro crisis is the match-decider for us,” said Bluhm.
HRE losses will be picked up by the government’s bank rescue fund Soffin – essentially the taxpayer. Autumn 2010 saw €175 billion in junk bonds and other loans pumped into the bank to stabilise it.
The purpose of the “bad bank” is to contain all the toxic assets and to manage them with as small a loss as possible. The investments should be sold as and when they can be, and the bank then closed down, but this is proving difficult to do.
Its Greek investments have already made a loss of nearly €8.9 billion. The portfolio was reduced by 8.5 percent to €160.7 billion by the end of last year.
A large share of the remaining bonds last until at least 2040, while some run until 2070 – which puts the original plan to wrap up the bank by 2020 in some serious doubt.
“Maximising value comes before pure liquidation,” said Bluhm, although he would not set a timetable for the end of the bank. It is feared that losses of around €21 billion are still lurking, as many of the bonds that have not yet been written off are worth considerably less than on the books of FMS Wertmanagement.
The HRE bank had nearly €30 billion invested in Italy, and around €10 billion in Spain. Bluhm said the current uncertainty in Europe meant he could not offer a prognosis for this year – which leaves open the question of how much money the HRE will need from the government.
“It would simply not be legitimate to put a figure on it,” he said, although he said it looked as if 2012 would not be as bad as 2011.
The former head of the bank Georg Funke, maintains his innocence in its collapse – in an interview with ZDF broadcaster’s “Frontal 21” show, he complained his reputation had been ruined, “on the basis of false allegations.”
He said even his resignation was, “not legally tenable”, and blamed the then finance minister, Peer Steinbrück. “Mr Steinbrück ruined the bank,” said Funke, speaking from his home on the Spanish holiday island of Majorca.
Steinbrück spoke at the end of September 2008 of a looming HRE bankruptcy. It nearly collapsed that year, but was rescued with government cash injections.