German Finance Industry Agrees on Hypo Real Estate Deal
October 3, 2008
The talks at the German Bundesbank headquarters lasted 12 hours, and revolved around how much each participant would contribute to the 35 billion-euro ($48 billion) deal to save the country's second largest mortgage lender, reported DPA news agency.
Bundesbank presidnet Axel Weber, along with Jochen Sanio -- head of the federal finance industry regulator Bafin -- as well as representatives of leading banks and insurance companies were involved in nailing down the final rescue deal.
Besides commercial banks, Germany's state savings banks as well as cooperative banks were also to be involved in the rescue package, in addition to insurance firms.
Sources told DPA that the insurance firms were called in to participate since many of them are strongly involved in bonds, with HRE's troubled subsidiary Depfa itself involved in issuing such paper for trading on world markets.
Trouble from subsidiary Depfa
Depfa, which HRE acquired just last year, has been the chief source of HRE's problems since, with Depfa coming under pressure of late, being unable to raise sufficient short-term loans amid the liquidity crunch on international financial markets.
Berlin and the finance industry had proposed a plan to save Hypo Real Estate from collapse earlier this week. The online edition of the Die Welt newspaper had said that the situation had become urgent and that HRE faced the threat of insolvency if no deal had been reached by Friday morning.
Berlin said it would not be nationalizing Munich-based HRE, but would post a guarantee for it of 26.6 billion euros, while German commercial banks would protect HRE from default with up to 8.5 billion euros.
Hours ahead of the German finance sector's agreement in Frankfurt, the European Commission in Brussels late Thursday gave its green light to the German government's guarantee.