German state-owned bank Hypo Real Estate said on Thursday that it plans to transfer up to EUR 210 bn of non-strategic real estate assets into a separate entity.

German state-owned bank Hypo Real Estate said on Thursday that it plans to transfer up to EUR 210 bn of non-strategic real estate assets into a separate entity.

The troubled real estate lender has submitted an application to the German Financial Markets Stabilisation Agency (FMSA) to establise 'a deconsolidated environment aimed at reducing assets in a value preserving manner'.

The transfer is scheduled to take place during the second half of 2010, Hypo added, after receiving all necessary approvals for the operation.

'The transaction will permit Deutsche Pfandbriefbank, the group's core bank, to continue focusing on its sustainable and forward-looking core business activities, and thus make an important contribution to the supply of credit for the real estate industry and the public sector,' the group said.

The operation will also help lower Deutsche Pfandbriefbank's additional capital requirements, paving the way for an eventual re-privatisation of the company in the future.

Specifically, the group is considering to transfer parts of the public finance and real estate finance portfolios of Depfa Bank and Deutsche Pfandbriefbank. This consists of highly-rated government or government-related assets which, despite their strong credit quality, are currently suffering from lower market valuations.

The transfer may also include assets currently held by Dublin-based Depfa ACS Bank, Hypo Pfandbriefbank International and Hypo Public Finance Bank, as well as structured products, derivatives and trading positions that are exposed to increased default risks.

'Establishing a deconsolidated environment is a key milestone in the group's realignment process. We will thus strengthen pbb Deutsche Pfandbriefbank as the Group's core bank by relieving it of nonstrategic or sub-performing assets, significantly reducing the size of its balance
sheet,' said CEO Axel Wieandt.

Hypo RE was forced into the arms of the German state last year after required billions of euros in state loans and guarantees on the wake of the credit crisis.