February 11, 2009 / 10:36 AM / 10 years ago

UPDATE 2-Troubled Hypo takes more help from German govt

* Hypo gets another 10 bln eur in state guarantees

* Total guarantees reach 52 bln eur

* Talks about capital boost continue

* Shares fall more than 6 pct (Adds detail, background, shares)

FRANKFURT, Feb 11 (Reuters) - Hypo Real Estate HRXG.DE is taking a further 10 billion euros ($13 billion) in guarantees from Germany’s bank rescue fund, underscoring the urgency of talks between politicians and bankers to stabilise the lender.

The property financier said the additional funding took its total guarantees provided by the state to 52 billion euros.

Hypo had to be rescued by a consortium of banks and the German government late last year with 50 billion euros of credit in addition to the state guarantees.

Officials from the German government, the Soffin rescue fund, Hypo and its large shareholder, U.S. investor J.C. Flowers, are wrestling with how best to prop up the capital base of the lender, which is a major player in Germany’s 800 billion euro Pfandbrief covered bond market.

“Negotiations between Hypo Real Estate Group and Soffin regarding more extensive and longer-term liquidity and capital support measures have not yet been finalised,” the lender said in a statement on Wednesday.

Flowers, which owns around a quarter of Hypo, will hold talks with the German government on Thursday, a Flowers spokesman said.

German Economy Minister Karl-Theodor zu Guttenberg, who took office this week, said on Tuesday he did not fundamentally oppose nationalising companies in the current economic climate, but said that the state should not go too far.

Hypo, which ran into trouble when the wholesale funding on which it depended dried up in the credit crisis, has been restructuring under Chief Executive Axel Wieandt, who joined Hypo from Deutsche Bank (DBKGn.DE) late last year.

Sources told Reuters earlier this month that Hypo Real Estate’s troubled assets might be fused with those of Commerzbank (CBKG.DE) to make a joint bad bank. [ID:nWEA4921]

The state already has a 25 percent stake in Commerzbank.

Politicians are reluctant to sponsor bad banks but they may be left with no choice as these schemes ultimately depend on government and taxpayer backing in order to isolate stricken bank assets from their owner’s balance sheets.

Hypo Real Estate's shares, which until late last year were part of the German blue-chip DAX .GDAXI index, have fallen by 97 percent over the last 18 months. They dropped as much as 6.3 percent and were down 5.4 percent at 1.201 euros by 1300 GMT.

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