Hypo RE to move toxic assets into bad bank by year-end

Nationalised German lender Hypo Real Estate said last week that it hopes to complete the planned move of around EUR 210 bn of toxic assets into a 'bad bank' during the fourth quarter of the year. In a statement announcing its Q2 financial results, the Munich-based bank also said that it plans to 'give guidance for 2011 towards the end of this year, once the planned transfer of non-strategic assets and risk positions to FMS Wertmanagement has been concluded'.

Hypo Re, the only German lender that failed the European Union's banking stress test last month, put forward a request in January to the German financial market stabilization agency Soffin to shift its problem assets, accounting for 55% of the total, into the new entity. The transfer is conditional upon the European Union's approval.

In the past months, the lender has been working on a 'consolidation programme' aimed at boosting profitability after requiring a bailout of over EUR 100 bn by the Soffin bank-rescue fund.

Hypo RE saw its pre-tax loss narrow in the second quarter of the year to EUR 395 mln, from EUR 664 mln a year earlier. 'The lion's share of the loan-loss provisions was recognized on real estate loans, reflecting the strained situation still present on real estate markets,' the lender said. The banked added that it does not expect to be profitable in 2010. Earlier the bank had said it did not expect to return to profit until 2012.