Hypo Real Estate (HRE), the troubled German lender in which the government has taken a majority stake, warned on Tuesday that risk provisions 'in the high three digit million region' will have a significant impact on income in Q2.

Hypo Real Estate (HRE), the troubled German lender in which the government has taken a majority stake, warned on Tuesday that risk provisions 'in the high three digit million region' will have a significant impact on income in Q2.

The provisions are being made in anticipation of losses to be incurred mostly on real estate loans as a result of the financial crisis and economic downturn, the bank said. They relate mainly to problematic loans in the markets of North America, Southern Europe, the UK, already recognised as being critical, but also in Germany. 'This development is leading to a high burden on income for Q2/2009,' HRE said.

HRE will publish its second-quarter figures on 7 August 2009. The bank reiterated its earlier statement that it expects to remain in the red for at least 2009 and 2010.

The German lender reported a EUR 382 mln first-quarter net loss in May, citing write-downs amid financial market turmoil and increased loan-loss provisions.

HRE said on Tuesday it is also examining possibilities for outsourcing significant portions of its problem loans as well as its non-strategic Value Portfolio, to a wind-down institute. This model, known as a 'consolidation bank', was originally developed for the regional banks ('Landesbanken') and has yet to be finalised. The application of this model could 'considerably reduce' Hypo Real Estate's balance sheet figure, enabling the healthy, strategic part of the bank to be freed up quickly, HRE said.