Financial Crisis: Hypo Real Estate on brink of collapse

Another top European bank is on the brink of collapse after a consortium of German financial institutions withdrew from a state-led rescue plan agreed two days ago.

Hypo Real Estate is the fifth German bank to be bailed out because of the credit crunch Photo: AP

Hypo Real Estate (HRE), the second largest mortgage lender in Germany, said the 35 billion euro (£27.3 billion) bail-out fell apart on Saturday.

The news is a fresh blow for the global financial system struggling to master an unprecedented crisis of confidence.

Hypo Real Estate was the fifth German bank to be bailed out in the wake of the credit market turmoil stemming from America.

German banks and insurers had nailed down final terms of the rescue package only during protracted and difficult negotiations in the early hours of Friday morning.

They were to absorb 8.5 billion euros (£6.6 billion) of the deal while the public sector was to shoulder the rest.

The deal was designed to ensure HRE had enough funding to ensure it could function properly.

“The 35 billion euro rescue package promised to the Hypo Real Estate Group and extending into 2009 announced last week is currently withdrawn,” the Munich-based real estate and public-sector lender said in a brief statement.

“The intended rescue package involved a liquidity line to be provided by a consortium of several financial institutions. The consortium has now declined to provide the line.”

HRE said it was investigating alternative measures and that its major shareholders were standing by the bank.

“We are fighting for the future existence of the company,” said Hans Obermeier, a spokesman for HRE.

A finance ministry spokesman said Berlin was taken by surprise by the news and would seek to compile more information on Sunday. “We hope that everyone is aware of their responsibility,” he added.

Germany’s central bank, the Bundesbank, and markets and financial industry regulator Bafin declined to comment.

Deutsche Bank, Germany’s biggest listed bank which played a key part in the HRE plan, and its smaller rival Commerzbank also declined to comment.

Shares in Hypo Real hit a low of 3.30 euros on Sept 29 but have rallied on the rescue plan, gaining 41.4 percent on Friday to close at 7.51 euros.

Last Updated: 9:06AM BST 05 Oct 2008

Source: The Telegraph

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