Munich-based Hypo Real Estate has announced a 38% drop in first quarter pre-tax profits to EUR 190mln from EUR 304mln the year before largely due to writedowns on bad investments. Without the amount from a mandatory convertible bond issued in connection with the acquisition of Dublin-based German lender Depfa, Hypo’s pre-tax profits totalled EUR 6mln. Announced year-earlier earnings are pro-forma to include the Depfa acquisition.

Munich-based Hypo Real Estate has announced a 38% drop in first quarter pre-tax profits to EUR 190mln from EUR 304mln the year before largely due to writedowns on bad investments. Without the amount from a mandatory convertible bond issued in connection with the acquisition of Dublin-based German lender Depfa, Hypo’s pre-tax profits totalled EUR 6mln. Announced year-earlier earnings are pro-forma to include the Depfa acquisition.

Hypo Real Estate's stock has been the worst performer on Germany's benchmark DAX Index this year, having fallen 29% since 15 January when the necessity for writedowns on collateralized debt obligations were announced. Writedowns in the first quarter came to EUR 175mln as a result of the impact of the US subprime crisis on investments. Continued market turmoil has led the company to announce that 'reliable statements concerning the further development of business in 2008 are not possible.' On 16 April a group of investors led by New York-based J.C. Flowers announced a plan to acquire approximately 25% of Hypo Real Estate at an expected cash price of EUR 22.5 per share.

Georg Funke, CEO of Hypo Real Estate, commented: 'The first three months of 2008 have without doubt been the most difficult quarter for our sector for many years. Although the market turmoil has again had a negative impact on our earnings, the Hypo Real Estate Group has been affected by the current crisis to a comparatively lesser extent than many of our competitors.'