Germany's Hypo says turmoil threatens profits goal

By John O'Donnell

MUNICH (Reuters) - Hypo Real Estate (HRXG.DE: Quote, Profile, Research) warned it faced writedowns and a hit to profits from market turmoil, but investors were relieved that the news from Germany's second-biggest property lender was not worse.

Hypo, which has been struggling to re-establish its credibility after springing unexpected subprime writedowns early this year, gave fresh details on Thursday of its 5 billion euro plus exposure to structured debt products.

It said the market for its 1 billion euro ($1.6 billion) portfolio of U.S. collateralised debt obligations (CDO) had deteriorated and that further writedowns were possible. About a quarter of the portfolio is subprime.

It also said any slip in the value of 3.2 billion euros of real estate-linked investments it owns would hit its revaluation reserve.

Management said the worsening situation threatened its 2008 pretax profit goal of over 1 billion euros. "In this crazy world, I don't feel comfortable giving any further outlook," Finance Chief Markus Fell told analysts.

But shareholders were relieved that there were no further nasty surprises and the stock jumped almost 15 percent.

"Everyone had been wondering how big Hypo's risk would be," said Konrad Becker, an analyst with Merck Finck. "Now that everything is out in the open, many investors have concluded that Hypo's problems are a lot smaller than they had feared."

"The financial crisis, however, is not over and it is hard to predict a result for Hypo. So the insecurity stays but the apocalyptic vision feared by some has subsided."