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German Government Leads Hypo Real Estate Rescue Talks
Oct. 5 (Bloomberg) -- The German government led talks to salvage a 35 billion-euro ($49 billion) bailout plan for Hypo Real Estate Holding AG today after the ailing property lender said commercial banks withdrew their support.

``We will see how we can clean up the mess that has been presented to us,'' Finance Ministry spokesman Torsten Albig said in a phone interview in Berlin. ``Everyone involved in this is hopefully aware of their responsibilities.''

The government and the Bundesbank have said that Hypo Real Estate, the nation's second-biggest property lender, is too big to fail. The negotiations to save it occur as the Belgian government today is attempting rescue Fortis, that nation's largest financial-services company, after a previous bailout also went awry amid the intensifying global credit crunch.

``All parties involved including banks and insurers are being invited by the government to meet once again, and I'm pretty shocked that this bank's management has revealed another liquidity gap of an unforeseen size,'' German Finance Minister Peer Steinbrueck said in Berlin today in comments broadcast by ARD television. ``We will have to start over again from last weekend's meetings. Hypo Real Estate has to be stabilized otherwise the damage would be unpredictable.''

Steinbrueck's comments ``indicate that in the end it will boil down to a bailout,'' said Kerstin Vitvar, a Munich-based analyst at UniCredit SpA who has a ``sell'' rating on the hares. ``Shareholders will end up almost empty-handed.''

Funding Requirements

Hypo Real Estate's shares have declined 79 percent this year, valuing the Munich-based company at 1.6 billion euros.

Hypo Real Estate's financing needs exceeded the bailout plan guarantee, German newspaper Die Welt reported yesterday, citing unidentified people in the finance industry. It will need 20 billion euros by the end of next week and 50 billion euros by the end of the year, according to the newspaper. As much as 100 billion euros may be needed to shore up the bank's finances by the end of 2009, Die Welt said.

``A financing need of 100 billion euros as reported by Die Welt is absurd out of today's perspective,'' Hypo Real Estate spokesman Hans Obermeier said in a telephone interview today.

Heiner Herkenhoff, a spokesman for the German BDB banking association, declined to comment on the figures. Bundesbank spokesman Christian Burckhardt said Bundesbank President Axel Weber is participating as an adviser to the government in the discussions.

Failed Plan

``The financing situation has further deteriorated over the past week because of the speculation about a possible wind-down of the company,'' Obermeier said.

In the failed rescue plan, the European Central Bank and the Bundesbank planned to contribute jointly 20 billion euros to a credit line for Hypo Real Estate, while a group of unidentified banks agreed to provide another 15 billion euros. The plan called for Hypo Real Estate to use 42 billion euros in assets, mostly debt owed by government borrowers, as collateral.

The lender sought the lifeline after its Dublin-based Depfa Bank Plc unit, which specializes in government lending and depends on now-closed money markets for funding, failed to get short-term funding amid the credit crunch.

Failure to provide the rescue package ``may have triggered unpredictable consequences for the German financial and economic system similar to those of the collapse of U.S. financial group Lehman Brothers,'' the Bundesbank and BaFin said in a joint letter dated Sept. 29 and addressed to Finance Minister Steinbrueck.

J.C. Flowers

``If we had not acted, the bank's crisis wouldn't have just hurt the financial sector, but its network of business would have hurt the real economy, in Germany and beyond,'' Steinbrueck said the same day.

Hypo Real Estate, run by Chief Executive Officer Georg Funke, 53, since it was spun off from HVB Group in 2003, reported a surprise 390 million-euro writedown on collateralized debt obligations on Jan. 15. The company said Aug. 13 that second- quarter pretax profit plunged 95 percent because of further markdowns on debt-related investments.

A group led by J.C. Flowers & Co., the buyout firm run by Christopher Flowers, bought a 24 percent stake in Hypo Real Estate for about 1.13 billion euros in June.

The global financial crisis that prompted Lehman Brothers Holding Inc.'s Sept. 15 bankruptcy filing is weighing on Europe. Belgium and France on Sept. 30 threw Dexia SA a 6.4 billion-euro lifeline. UniCredit SpA is seeking to raise boost its capital, and the Icelandic government is reportedly trying to arrange a 10 billion-euro injection into its banking system.

European leaders yesterday pledged to bail out their own nations' banks while stopping short of a regional rescue effort to deal with the global credit crisis.

To contact the reporters on this story: Hellmuth Tromm in Berlin at htromm@bloomberg.net; Oliver Suess in Munich at osuess@bloomberg.net

Last Updated: October 5, 2008 11:00 EDT

Category: world real estate | Added by: (2008-10-05)
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