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NewsSeptember 27 2010

Hypo Real Estate moves €191bn into bad bank

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Troubled German lender, Hypo Real Estate Group (HRE), is to transfer as much as €191bn of assets to a bad bank. The German government hopes this will help the bank return to its core covered bond operations, under the name of Deutsche Pfandbriefbank. HRE will transfer the risky assets – including loans, bonds and derivatives related to property and public sector assets – together with business lines that HRE wants to divest into a special entity, FMS Wertmanagement. The unwanted business lines include the financing of developments as well as HRE’s infrastructure business.

The special entity has been set up by SoFFin, the organisation set up by the German government to manage public support for the country’s banking system, and to oversee the restructuring of banks such as HRE.

SoFFin will provide FMS with €3.87bn of capital to absorb any losses in the unwinding of the portfolio.

"The transfer to FMS is an important pre-requisite for the further stabilisation and the restructuring of HRE," says SoFFin’s management committee speaker Hannes Rehm. "The transaction allows for a value-preserving liquidation of the transferred assets."

It was originally estimated that HRE would transfer more than €200bn of assets, however the book value of the assets turned out to be lower, SoFFin says.

SoFFin will also inject a further €450m of fresh equity into HRE in a deal that was approved in April 2010. This latest recapitalisation takes the total equity transfused into HRE to almost €10bn.

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