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German banks pool together to save one of their own

Latest update : 2008-09-29

Hypo Real Estate bank (HRE) has been rescued from the brink of bankruptcy by a consortium of German banks. Hit hard by the effects of the US subprime loan crisis, the real estate lender has received enough credits to cover its funding needs.

The German bank Hypo Real Estate (HRE) was granted a last-minute "multi-billion euro" credit line from a consortium of German banks that allowed it to avoid declaring bankruptcy, it said Monday.

A consortium has provided the troubled real estate lender "a major new credit facility which is designed to shield the company from the impact of the current malfunctioning of the international money markets," a statement said.

The unspecified amount was "sufficient to cover the group's funding needs well into the future," it added.

The German central bank and the stock market watchdog BaFin said separately that they "felt that Hypo Real Estate's viability was thus guaranteed."

The lender had launched talks with unidentified German banks "in response to the extremely challenging conditions on the international money markets following the Lehman collapse and other market disruptions," HRE said in reference to the bankrupt US investment bank Lehman Brothers.

Banks that normally borrow money on interbank markets have seen that source dry up since the US subprime mortgage crisis erupted more than a year ago, and institutions that depended on regular refinancing of their debts have run into crisis.

The daily Financial Times Deutschland reported in its Monday edition that private German banks had been trying "feverishly" to find a way to rescue the institution, hit hard by the US subprime loan crisis that began in August 2007.

The report said the bank, which is listed among Germany's 30 blue chip Dax index companies, had fallen victim to speculation by its German-Irish unit Depfa.

The paper said Depfa had pursued long-term projects with heavy loans and generally ensured refinancing only at the last minute, which due to the current global credit crunch was no longer possible.

HRE would have to pick up the tab for the refinancing, estimated to be in the double-digit billions of euros (dollars) range, according to the report.

"It is highly unlikely at the present time that HRE will be able to come up with that amount," the paper wrote ahead of the reported rescue package.

HRE operates in three sectors: commercial real estate; public sector and infrastructure finance; and capital markets and asset management.

Date created : 2008-09-29

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