EU voices doubts over Germany's HRE bank after aid approval

24th September 2010, Comments 0 comments

Europe's top competition watchdog on Friday expressed "doubts" about the long-term viability of troubled German bank Hypo Real Estate, while granting temporary approval for ongoing state support.

"At this stage, I still have doubts about the long-term viability of HRE," European Union competition commissioner Joaquin Almunia said.

"Before adopting a final decision on the restructuring plan I will closely examine the long-term viability of the bank and the adequacy of the measures to limit distortions of competition and to ensure burden sharing."

Germany has bailed out HRE, badly hit by the global financial crisis, by covering the transfer of some 200 billion euros (264 billion dollars) of toxic and non-strategic assets into a winding-up institution and offering additional state guarantees of up to 40 billion euros.

The EU has cleared this support for the moment pending a further review of additional state aid for HRE.

Brussels explained it gave the extended approval after Berlin warned of "an acute risk of a liquidity shortage" before the transfer of assets is scheduled to take place.

The bank indicated on Friday that it would spell out details of its wind-down plan on October 1, with those transfers still being worked out among subsidiaries over the intervening days.

Germany's financial market stabilisation fund SoFFin said Wednesday that a further two-billion-euro cash injection would help HRE establish this "bad bank."

HRE, which last year narrowly avoided bankruptcy before being nationalised, was the only German bank to fail Europe-wide stress tests in July.

The specialist in property lending and municipal financing has become dependent on state guarantees to refinance its debt on financial markets at affordable interest rates.

HRE collapsed in late 2008 amid a global crisis owing to investment mistakes made by its German-Irish subsidiary Depfa.

© 2010 AFP

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