Hypo pledges full cooperation to probe of alleged market manipulation

Munich-based Hypo Real Estate said on Thursday it is cooperating fully with an investigation by German prosecutors into alleged market manipulation at the listed bank when it was seeking a multi-billion euro lifeline to survive the credit crisis.

The bank was reacting to a statement issued by the Munich office of the prosecution service saying it had searched Hypo Real Estate's offices and homes of former board members as part of an investigation into suspected violation of disclosure rules and breach of trust. 'We have already seized extensive material. We're continuing to secure electronic data,' said Munich prosecution chief Christian Schmidt-Sommerfeld

A team of 15 prosecutors and 65 police officers took part in the searches of homes of executives who were members of the management board from November 2007 to September 2008. The home of the former chairman of the supervisory board was also searched. Germany's financial regulator BaFin is also involved in the investigation.

The issue at the centre of the investigation appears to be an office statement issued by Hypo Real Estate on 29 September this year saying it had secured a EUR 35 bn lifeline from a public-private consortium in Germany. Hypo said that the multi-billion euro short-term and mid-term credit facility was 'sufficient to cover the Group’s funding needs well into the future.'

Georg Funke, then CEO of Hypo Real Estate Group, added: The new credit facility is a far-reaching and innovative approach which allows us to adjust our funding structure in order to accommodate the current malfunctioning of the international money markets. Hypo Real Estate Group will not need to go back to the unsecured money market for its refunding in the foreseeable future.'

Five days later the bank announced that the consortium had declined to provide the credit line. On 6 October 2008, Hypo Real Estate announced that it had secured a new agreement with the consortium for a EUR 50 bn credit line. The bank subsequently arranged multi-billion loan guarantees with SoFFin, the stabilisation fund. Funke resigned a day later, and was replaced as CEO by Axel Wienandt.

Kurt Viermetz stepped down as chairman of the supervisory board shortly after Funke's departure.