October 4, 2008 / 8:05 PM / 11 years ago

Hypo Real fights for life after rescue collapses

FRANKFURT (Reuters) - Property lender Hypo Real Estate (HRE) HRXG.DE fought for its life on Saturday after German banks and insurers pulled out of a state-led 35 billion euro ($48.5 billion) rescue program stitched together only days ago.

The logo of German lender Hypo Real Estate is pictured in Munich October 1, 2008. The government threw a lifeline to cash-strapped lender Hypo Real Estate on Monday in an about-face just days after its finance minister said Germany's bank system was solid. Berlin agreed to provide the bulk of 35 billion euros ($50 billion) in credit guarantees for Hypo, which is the fifth German bank to be bailed out by the state in the face of financial sector turmoil. REUTERS/Michael Dalder

The news is a fresh blow for the global financial system struggling to master an unprecedented crisis of confidence and poses a political challenge for the Berlin government, which has been fighting efforts to arrange a pan-European bank bailout.

“The 35 billion euro rescue package promised to the Hypo Real Estate Group and extending into 2009 announced last week is currently withdrawn,” the Munich-based real estate and public-sector lender said in a brief statement.

“The intended rescue package involved a liquidity line to be provided by a consortium of several financial institutions. The consortium has now declined to provide the line.”

HRE said it was investigating alternative measures and that its major shareholders were standing by the bank, but the sudden turn of events added a sense of drama to efforts to restore a sense of order to a badly shaken world of finance.

“We are fighting for the future existence of the company,” HRE spokesman Hans Obermeier said.

“We can only assume and hope that all parties participating in these discussions are fully aware of the seriousness of the situation,” Obermeier added.

TAKEN BY SURPRISE

A finance ministry spokesman said Berlin was taken by surprise by the news and would seek to compile more information on Sunday. “We hope that everyone is aware of their responsibility,” he added.

Germany’s central bank, the Bundesbank, and markets and financial industry regulator Bafin declined to comment.

Sources familiar with the matter told Reuters that the German financial sector had balked at the plan after fresh financing shortfalls had emerged at the weekend. They had then insisted that Berlin take on a greater role in saving the bank.

German banks and insurers had nailed down final terms of the rescue package only during protracted and difficult negotiations in the early hours of Friday morning. They were to absorb 8.5 billion euros of the deal while the public sector was to shoulder the rest.

The deal was designed to ensure HRE had enough funding to ensure it could function properly even though the short-term interbank lending market it depends on has practically halted.

Deutsche Bank (DBKGn.DE), Germany’s biggest listed bank which played a key part in the HRE plan, and its smaller rival Commerzbank (CBKG.DE) declined to comment on Saturday.

Hypo Real Estate was the fifth German bank to be bailed out in the wake of the credit market turmoil stemming from the United States.

Shares in Hypo Real hit a low of 3.30 euros on September 29 but have rallied on the rescue plan, gaining 41.4 percent on Friday to close at 7.51 euros.

Additional reporting by Gernot Heller in Berlin; Writing by Michael Shields and Jonathan Gould; Editing by Louise Ireland and Knut Engelmann

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