* Bank bailout fund weighs winding down bank - sources
* HRE favours sale to consortium for 320 mln eur - document
* Potential collateral damage for pbb bank seen if no sale
By Arno Schuetze, Matthias Sobolewski and Kathrin Jones
FRANKFURT/BERLIN, May 13 Nationalised German bank Hypo Real Estate (HRE) has told its owners that the benefits from a sale of its Depfa Bank unit to U.S.-based investor Leucadia outweighed those resulting from a winding down of the public finance arm, a document obtained by Reuters shows.
Germany's bank bailout fund Soffin is expected to decide on Tuesday whether to wind down or sell Depfa Bank, a lender to governments that collapsed in the financial crisis, government and financial sector sources said.
Soffin's steering committee faces a difficult choice: maximise gains or minimise the loss to the taxpayer.
"The (320 million euros) in proceeds from a sale clearly exceed the run-off value of 114 million euros that HRE and the adviser of (state bailout) fund FMSA anticipate," the document written by Hypo Real Estate's board says.
Winding Depfa down slowly over a period of 20 years may limit the bailout bill for taxpayers but carries ongoing risks if markets weaken.
Selling Depfa wipes the slate clean for the government and closes a chapter of Germany's legacy issues stemming from the financial crisis, limiting further downside risk but also crystallising the losses already made by taxpayers in the bailout.
"Both options are on the table," sources in Germany's "grand coalition" government of Christian Democrats (CDU) and Social Democrats (SPD) said late on Monday. Financial sources said there was an even chance of either option being chosen.
Hypo Real Estate said in the internal document that the preferred suitor Leucadia and its partner Massachusetts Mutual were long-term oriented investors, which plan to continue restructuring Depfa's portfolio and use the platform for new business.
It added that a decision not to sell may scare off potential buyers of HRE's mortgage lender Deutsche Pfandbriefbank (pbb), which it has to sell by the end of 2015 as a condition for the European Commission's approval of the state bailout.
Hypo Real Estate declined to comment. (Writing by Jonathan Gould; editing by Tom Pfeiffer)