* 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
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
"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
Hypo Real Estate declined to comment.
(Writing by Jonathan Gould; editing by Tom Pfeiffer)