The Hypo Real Estate Collapse in Germany

[2Pack]

It is a truly sad state of affairs that a failed market operation by a Dublin bank can effectively collapse one of the biggest banks in Germany without anyone noticing in Ireland, they surely did in Germany

ft.com/cms/s/0/60cec9cc-8df0 … fd18c.html

and

depfa.com/about/933.html

DEPFA has been operating since June 2002 as a pure Public Finance bank. Headquartered in Dublin, it operates branches and subsidiaries in the most important financial centres across Europe and beyond. DEPFA BANK plc’s products and services cover the whole range of the public sector’s financing needs, from budget financing to the funding of public infrastructure products and investment banking solutions for public-sector authorities. DEPFA BANK will continue to optimise its clearly focused business model, with the objective of becoming the preferred financing partner for public-sector authorities worldwide.

and

https://www.depfa.com/img/SCR_DEP_about-group-structure-en.gif

Now read the FT

Germany’s financial sector was in turmoil on Monday after Hypo Real Estate, one of its biggest lenders, had to be rescued by other banks and the government to solve a €50bn ($72bn, £40bn) liquidity crisis.

Shares in HRE plunged more than 70 per cent and other banking stocks nosedived after the intervention, the most serious sign of strain in Germany’s financial sector since the collapse of Lehman Brothers aggravated the global credit crisis this month.

HRE, one of Europe’s biggest commercial property and public sector lenders, was handed a €35bn liquidity lifeline by other German private sector banks, the Bundesbank and the European Central Bank. The lender is also selling €15bn of assets to cover its liquidity shortfall.

The rescue is likely to lead to a sale of assets from HRE’s €400bn balance sheet. Peer Steinbrück, Germany’s finance minister, said HRE’s remaining businesses would be placed in a special purpose vehicle for an orderly wind-down. But people close to HRE rejected the suggestion.

The government and a consortium of German banks will underwrite €35bn of credit guarantees for HRE, with the banks standing for a 60 per cent share of an initial €14bn guarantee. The government will provide the remainder of the first-loss piece and a further €21bn guarantee, meaning the state’s exposure could rise to more than €26bn.

The urgent bail-out was agreed in the early hours of yesterday with Mr Steinbrück and Angela Merkel, German chancellor, in telephone contact with bankers and officials meeting in Frankfurt. A finance ministry official said: “We are walking on the edge – this is really serious. We don’t know what will happen tomorrow.”

**HRE is one of Germany’s most prominent financial companies and one of the 30 companies in the Dax index, which fell 4.2 per cent.

---

The rescue was organised after HRE’s inability to refinance short-term borrowing within Depfa, its Dublin-based subsidiary that lends to the public sector. HRE admitted it faced “extremely challenging conditions on the international money markets”.
**
Bafin, Germany’s financial regulator, and the Bundesbank said the package of short and mid-term financing would ensure the viability of the company.

Only a few months ago JC Flowers, the private equity investor, led funds investing €1.1bn in HRE, buying almost 24.9 per cent of the bank for €22.50 a share.

Shares in HRE had fallen 74 per cent to €3.52 by the close in Frankfurt.

Stocks of banks with substantial property exposure were also savaged, with Commerzbank and Deutsche Postbank falling 23 per cent.

A failure of HRE could also have had repercussions for Germany’s important market in ultra-safe covered bonds, or Pfandbriefe. HRE is an important issuer of such bonds.

Two Depfa executives including Bo Heide-Ottosen, a director who oversaw public sector finance at HRE, are to leave

[Tyrone]

Spoke to a German workmate of mine this morning who has just returned from there from holiday. Apparently the German media has blamed the Irish section of Hypo for all its trouble’s. Apparently this does not deserve a mention in Ireland

[2Pack]

Our media is not interested in this at all.

**This is the third LARGE German bank to collapse because of shenanigans involving an arm in Dublin **

The THREE largest bank collapses in Germany in recent times ( 2007/2008) all came with a dodgy Dublin connection somewhere in the mix .

[What_Goes_Up]

So companies were locating in the IFSC to benefit from the “imaginative” Irish approach to finance or the “imaginative” Irish approach to regulation?

[Carnage]

badfaithinsurance.org/refere … /0200a.htm

We specialise in all sorts of shenanigans, not just banking: Interesting article from 2005 arround the time the IFSC was christened ‘the financial wild west’.

[2Pack]

The “imaginative” regulation …meaning that Ireland does not regulate because that would imply that we care.

The ISE and FinReg / Ifsra and the Central Bank and indeed the Accountancy Profession have all caught a bad dose of " The Comreg Disease " .

Look at how dodgy and expensive taxis are since we got a Taxi Regulator in the past 2 years .

In Ireland you set up a sectoral regulator quango to keep Europe off your back .

[verbatim]

You have to wonder why the Germans bailed out this crowd. Still, it doesn’t stop them bringing the full force of the law to investigate the white collar criminals. What are the chances of that happening here?

[*A Black Hole in the Banking Bailout - Spiegel * (Insider Trading Alleged at Hypo Real Estate: A Black Hole in the Banking Bailout - DER SPIEGEL)

12/29/2008

By Beat Balzli, Dinah Deckstein and Jörg Schmitt

Prosecutors in Germany are investigating accusations of insider trading at Hypo Real Estate, the Munich-based mortgage lender that has recieved billions of euros in government bailouts – the most of any company so far – as a result of risky investments in US subprime loans.

They arrived early in the morning in large teams and they raided numerous offices and private residences at the same time. In November 2006, the Siemens corruption scandal came to light with a major police raid – an affair whose first chapter ended several days ago with a multibillion dollar settlement with the United States government.

Former Hypo Real Estate CEO Georg Funke: What will remain of the company will be a shell of its former self.
As news came recently of the Siemens judgment in the US, it almost seemed like deja vu when investigators launched spectacular raids in what could become Germany’s next great business scandal.

Yet again, dozens of investigators mounted simultaneous raids on numerous locations. But this time the investigations aren’t into corruption. Investigators are looking into charges of speculation, market manipulation, breach of trust and deception, insider trading and incompetence among greedy finance managers at the Munich-based Hypo Real Estate, one of the German banks that has been the most deeply entangled in the finance crisis. The sums of money involved in this scandal far exceed those in the Siemens affair.

Just three months ago, the German government, the German central bank (Bundesbank) and several credit institutions agreed to provide HRE with €50 billion ($71.7 billion) in liquidity to prevent the bank’s collapse and a chain reaction that would have hit other German banks. The government then had to provide an additional €30 billion in credit guarantees to the crippled bank.

…

[newirishman]

@verbatim

You have to wonder why the Germans bailed out this crowd. Still, it doesn’t stop them bringing the full force of the law to investigate the white collar criminals. What are the chances of that happening here?

HRE is quite big, and it failling over was/is seen as a systemic risk. Depfa has almost half a trillion of assets, and financing many communities, countries, cities, etc.
At the end, the business model they run wasn’t sustainable in the current market situation - financing long-term loans with short-terms business only works as long as you hve someone lending you the short term money. And as we all know, no (short-term) money available.

Very unfortunate for HRE, as they only merged their own IFSC-based HPFB (Hypo public finance bank) with Depfa end of last year (or beginning of this year). However, someone had f**cked up big time when assessing Depfa’s assets. HRE paid 5 billion for Depfa, and in third quarter this here it caused 2.5 billion loss…

The main reason why all this probably wasn’t mentioned in the news here too much is that Depfa is practically doing noon business in Ireland or has any Irish clients.

[newirishman]

@What Goes Up...

So companies were locating in the IFSC to benefit from the “imaginative” Irish approach to finance or the “imaginative” Irish approach to regulation?

I know quite a few people working in depfa/hre here in Dublin - they have to deal with the German as well as Irish financial regulator and they pretty much say that the Irish regulator is more than useless…

[Stifster]

@newirishman

@What Goes Up...

So companies were locating in the IFSC to benefit from the “imaginative” Irish approach to finance or the “imaginative” Irish approach to regulation?

I know quite a few people working in depfa/hre here in Dublin - they have to deal with the German as well as Irish financial regulator and they pretty much say that the Irish regulator is more than useless…

A close family member who works for them here says the Germans knew or should have well known what was going on. They did a Madoff on it.

[verbatim]

[*Hypo Real Estate set to dispose of Dublin subsidiary Depfa - IT * (https://www.irishtimes.com/newspaper/finance/2009/0130/1232923375284.html)

GERMAN OFFICIALS meeting this morning to decide on whether to nationalise troubled commercial lender Hypo Real Estate (HRE) have indicated that a decision has already been made to cut loose its Dublin subsidiary, Depfa.

The Dublin bank, bought by HRE for €5 billion in 2007, will be separated from the rest of the group, according to government sources, regardless of whether a full nationalisation goes ahead.

A spokesman for the parent company in Munich declined to comment on ongoing negotiations with the German bank stabilisation fund, SoFFin. “It’s clear that Depfa is the source of the problem and it is not so difficult to remove what is standing in the way of a solution,” said one source familiar with the talks.

…

It is not clear at this stage what the future would hold for Depfa and its 300 employees outside the HRE group.

A source at the Munich company suggested that, once it overcomes its liquidity problems, the Dublin operation would be an attractive business.

It’s hard to imagine anyone buying an operation like Depfa in the current environment.

[yoganmahew]

Good post from Ed Harrison on HRE as it finally seems to be reaching a conclusion:
nakedcapitalism.com/2009/05/ … erman.html

The first bank nationalization in German history is about to take place. At issue is Hypo Real Estate (HRE), a troubled Munich-based company that lends to commercial property developers and to build offices, hotels, roads, airports, you name it.

This issue has been building for nearly 7 months. Back in late September, just after Lehman went under, the Germany government was forced to bail HRE out as it ran into funding problems at its Irish subsidiary, Depfa. Since then, the situation at HRE has gotten considerably worse. Cognizant that it had a Lehman situation on its hands, the German government went so far as to change the laws to allow it to nationalize HRE. This is about to happen.

The Financial Times writes:

The government has given HRE shareholders until May 4 to accept the offer. As of Thursday more than 7.5 per cent of HRE shares had been tendered, giving the government control of 16.2 per cent of the company. It already held a stake of more than 8.6 per cent after a small capital increase last month.

[Ozzy]

@Ed Harrison

I would say the bailout is similar to what we are seeing with systemically important institutions in every single Western country (Fortis in the Benelux, RBS in the UK, Citigroup in the US).

I would say the bailout is similar to what we are seeing with systemically important institutions in every single Western country (Fortis in the Benelux, RBS in the UK, Citigroup in the US, Anglo Irish in Ireland).
Fixed that for you Ed

[yoganmahew]

@Ozzy

I would say the bailout is similar to what we are seeing with systemically important institutions in every single Western country (Fortis in the Benelux, RBS in the UK, Citigroup in the US, INBS and Barry’s corner shop).
Fixed that for you Ed

Fixed that for you Ozzy…

[the_edge]

Update.

online.wsj.com/article/SB124346085723259931.html