UPDATE 1-German bank rescue fund posts $17 bln loss for 2011

Fri Apr 27, 2012 3:41pm EDT

Related Topics

* SoFFin forced to absorb losses on bank assets

* Writedowns worth 8.9 billion euros on Greece

* SoFFin takes loss on 25 percent Commerzbank stake (Adds details, background)

By Edward Taylor

FRANKFURT, April 27 (Reuters) - Germany's financial market stabilisation fund, SoFFin, posted a loss of 13.1 billion euros ($17.4 billion) for last year - one of the largest in German financial history - hit by writedowns on Greek debt and losses on stakes in Commerzbank and WestLB.

Technically SoFFin is not a bank, so the loss cannot be directly compared with other large German bank losses such as Dresdner Bank's 6.18 billion euros net loss in 2008.

But the results, which were published on Friday, show that losses from the German banking system continue to surface years after bailed out banks have returned to profitability.

Dresdner Bank was eventually absorbed into Commerzbank, which itself posted a net profit of 638 million euros in 2011.

Germany established the SoFFin in October 2008 in an attempt to restore confidence to its financial sector after a raft of banks, including Hypo Real Estate, IKB and SachsenLB, ran into trouble. It allowed these lenders to transfer some assets into "bad banks" guaranteed by the German state.

By removing toxic assets from their balance sheets and getting capital injections, lenders have been able to return to profitability, a benefit mainly to shareholders and bank clients.

The SoFFin loss will add fuel to a fierce debate in Europe over who should shoulder the cost of cleaning up the financial system. Spain is preparing to force the banking sector, not the government, to assume the cost of any unprovisioned losses on real estate assets after they are moved into a special holding company, a government source said on Friday.

By contrast, Germany nationalised its biggest real estate lender Hypo Real Estate in 2009, in a controversial move which forced the Government to assume responsibility for further losses.

SoFFin said it was forced to absorb an 11.4 billion-euro hit from FMS Wertmanagement, an investment vehicle which holds assets formerly on the balance sheet of the nationalised Hypo Real Estate. Of this amount, writedowns worth 8.9 billion euros come from Greek debt.

Further losses were caused by adjusting the value of a 25 percent stake in Commerzbank, the country's second-largest lender behind Deutsche Bank, as well as a writedown on a non-voting capital stake in WestLB.

Germany was forced to rescue a raft of lenders between 2007 and 2009, bailing out Hypo Real Estate, WestLB, Commerzbank and IKB after the collapse of the subprime debt market led to an inter-bank lending freeze and heavy portfolio losses.

At the height of the subprime crisis, SoFFin was forced to provide 168 billion euros worth of liquidity guarantees, and 29.4 billion euros worth of capital to seven troubled lenders in Germany.

By the end of March 2012 the liquidity guarantees were down to 11.2 billion euros, SoFFin said on Friday.

Capital injections were cut to 28.2 billion euros by the end of December 2011, SoFFin said. ($1=0.7542 euros) (Editing by Greg Mahlich and Dan Grebler)

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