EU clears massive state aid to German bank HRE

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The European Commission gaves its blessing on Monday to a massive German government bailout of the banking group Hypo Real Estate on condition of a drastic downsizing.

The European Union's competition watchdog approved capital injections of 10 billion euros ($14 billion), an asset relief measure of about 20 billion euros and liquidity guarantees amounting to 145 billion euros.

In return, HRE will gradually give up all commercial activities except for those in its core bank Deutsche Pfandbriefbank.

"Today's decision brings one of the most significant financial crisis state aid cases to a constructive close," EU competition commissioner Joaquin Almunia said.

"HRE and its core bank pbb Deutsche Pfandbriefbank are significantly downsizing to limit the competition distortions caused by the huge state support they needed to survive the crisis," he said, using the full name of the bank.

"The restructuring plan seeks to ensure that the serious liquidity problems which threatened HRE's existence some years ago cannot be repeated, so as to ensure the future viability of pbb."

By the end of the year, the bank's adjusted balance sheet will be around 85 percent smaller than the HRE group's balance in 2008, the commission said.

"This will adequately address the distortions of competition created by the massive state support received by the German banking group during the financial crisis," it added in a statement.

HRE was thrown into turmoil in September 2008 by the "sub-prime" real estate crisis in the United States.

The bank received state aid before it was nationalised in 2009 to avoid a catastrophic bankruptcy the government said would have threatened the entire German banking sector.

© 2011 AFP

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