Nationalised German real estate financier Hypo Real Estate has been granted a further EUR 40 bn in state guarantees to enable it to avoid any 'liquidity shortfalls'. The total maximum of the temporary guarantee facility provided to HRE, which operates Deutsche Pfandbriefbank, now amounts to up to EUR 142 bn.

Nationalised German real estate financier Hypo Real Estate has been granted a further EUR 40 bn in state guarantees to enable it to avoid any 'liquidity shortfalls'. The total maximum of the temporary guarantee facility provided to HRE, which operates Deutsche Pfandbriefbank, now amounts to up to EUR 142 bn.

Announcing the temporary increase in aid, the German bank stabilisation fund Soffin said it was taking the action with a view to HRE´s planned spin-off of substantial risk assets and non-strategic business lines to a bad bank (FMS Wertmanagement).

Soffin said that liquidity shortfalls might arise from unforeseeable movements in the interest and capital markets as well as from settlement and transfer risks in the context of the envisaged transfers to the bad bank.

'This measure is highly complex and probably unique in respect of its volume. It will require a substantive joint effort, but its success will be a milestone in the restructuring of HRE,' said Dr. Hannes Rehm, spokesman of the Leitungsausschuss (management committee) of the Bundesanstalt für Finanzmarktstabilisierung.

All bonds eligible for being guaranteed under the temporarily increased facility will be transferred together with all existing guaranteed bonds to the bad bank. The bad bank will successively replace the bonds with bonds with newly issued bonds. The bonds guaranteed by Soffin will consequently be redeemed in full and the guarantees will be returned.