March 20, 2017 / 4:52 PM / in 10 months

Bailed out German bank HRE's former CEO deceived markets, prosecutor alleges

MUNICH, March 20 (Reuters) - The former chief executive of German lender Hypo Real Estate (HRE) covered up liquidity problems just weeks before its near collapse almost a decade ago, a public prosecutor alleged in a Munich court on Monday.

Georg Funke and former chief financial officer Markus Fell are both facing charges of falsifying the bank’s earnings reports in 2007 and 2008. Fell is also facing a charge of market manipulation.

Fell denied the charges on Monday, and Funke will present his defence on Tuesday. Both former managers have previously denied any wrongdoing.

Germany bailed out HRE in 2008 and nationalised it in 2009 after the bank faced huge writedowns on its mortage-backed securities exposure, which collapsed in the aftermath of Lehman Brothers bankruptcy. The ensuing global financial crisis also squeezed the bank’s liquidity position.

The government injected capital of 10 billion euros ($10.8 billion) into the stricken bank and offered 145 billion euros in liquidity guarantees, of which it used 124 billion. Prosecutors alleged on Monday that Funke and Fell had known since 2007 the bank was facing liquidity problems and its state financing subsidiary Depfa, bought in the same year, had been nearly illiquid as early as September 2007.

Despite some HRE staff and external auditors describing the bank’s liquidity as critical, the managers had assured up until just weeks before the bank’s near-collapse that there were no serious problems with its liquidity position, the prosecutors alleged in court.

$1 = 0.9301 euros Reporting by Jörn Poltz; Writing by Arno Schuetze; editing by Susan Thoma

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