March 16, 2015 / 2:20 PM / 4 years ago

UPDATE 2-Germany says DuesselHyp rescue is isolated case

* BDB to take over DuesselHyp from Lone Star

* Duesselhyp had to be rescued due to Heta exposure

* Other banks also have exposure to Heta (Adds BbB comment, paragraphs 2-3)

BERLIN, March 16 (Reuters) - Germany expects the problems at Duesseldorfer Hypothekenbank AG (DuesselHyp) to remain an isolated case after the property lender had to be rescued due to its exposure to Austrian lender Hypo Alpe Adria’s “bad bank” Heta.

The German BDB association of private sector banks said on Monday that its relevant committees had approved a takeover of the bank from U.S. investor Lone Star.

“With the acquisition of the bank the continuation of the bank has been guaranteed in the interest of its customers and the stability of financial markets,” BDB managing director Michael Kemmer said.

The BDB had hammered out a deal over the weekend with financial market watchdog Bafin, the Bundesbank and resolution authority FMSA to provide a guarantee for DuesselHyp’s holdings of around 350 million euros ($370 million) in Heta bonds that are subject to a debt moratorium imposed by Austrian financial regulators.

The finance ministry said that bank regulators were continuing to study the moratorium’s impact on German banks but characterized the problems at DuesselHyp as an “isolated case”.

“The Bafin and FMSA stood ready at all times to use crisis measures under the banking supervision law and the new recovery and resolution act,” it added.

Rating agency Fitch has said that assuming a haircut of 50 percent and assuming that German banks hold around 40 percent of Heta’s liabilities that are affected by the moratorium, this could cost German banks up to 10 percent of the sector’s 2015 net profit.

In Germany, BayernLB, which owned Hypo before it was nationalized in 2009, is potentially facing the largest hit from the Hypo disaster.

But other banks including Deutsche Pfandbriefbank, Munich Re and HSH Nordbanks also have large holdings, which they have had to write down substantially.

Winding down DuesselHyp, which Lone Star had taken from the rescue fund in 2010, would have been a far more expensive option than the solution reached over the weekend, a financial source familiar with the proceedings said.

Lone Star was not required under German law to provide extra capital to DuesselHyp to make up for the loss in value of its Heta bonds. The investor would have needed to kick in more than 100 million euros to make up for the shortfall, the financial source said.

Lone Star had reached an agreement last year to sell DuesselHyp to a group of international buyers led by London-based Attestor but had asked them to withdraw their bid to enable the BDB to intervene, two financial sources said.

“Those who already have a negative view of private equity will say that this is typical: when there’s a problem, they run away,” said a banker familiar with the situation.

Lone Star is also trying to sell its majority stake in industrial bank IKB and is in talks with a few potential private equity buyers after large banks said they were not interested in the lender, the banker said.

While DuesselHyp and IKB have weighed on Lone Star’s reputation, the private equity firm has had more success with its investment in real estate group TLG, which it listed last year, and mortgage lender Corealcredit, which it sold to peer Aareal in 2013.

DuesselHyp and Lone Star declined to comment. ($1 = 0.9459 euros) (Reporting by Jonathan Gould, Andreas Kroener, Arno Schuetze, Michelle Martin and Stephen Brown; Editing by Mark Heinrich)

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