Hypo Real Estate gets 40 bln euros in extra guarantees

FRANKFURT: Bailed-out German bank Hypo Real Estate (HRE) will temporarily receive an additional 40 billion euros (RM159 billion) in guarantees to set up a bad bank, the national bailout fund Soffin said on Friday.

The total volume in guarantees will increase to 142 billion euros to avoid liquidity shortages at HRE, Soffin said.

HRE, whose business model combined investment banking with real estate finance, was nationalised last year after it became Germany's highest-profile casualty of the credit crunch.

When the credit crunch hit HRE, the lender was deemed too important to fail given its weight in Germany's covered bond market, a major source of refinancing for the banking sector in Europe's biggest economy.

Now it is restructuring and has bundled into Deutsche Pfandbriefbank its property and public-sector financing businesses, which have a volume of around 130 billion euros -- a third of the bank's former size.

New liquidity shortages at HRE could occur if financial markets developed adversely or due to risks related to the settlement and the transfer of risky assets to the bad bank, Soffin said.

The current guarantees of 102 billion have been used up to a large extent, financial sources said, adding the additional guarantees will be limited to a period of three months.

The bank hopes to win European Union approval for its bailout as early as the fourth quarter, when it also wants to shift 180 billion to 185 billion euros in partly toxic assets to its bad bank dubbed FMS Wertmanagement. -- Reuters