GERMANY’S FINANCE ministry has dismissed claims that the final taxpayer bill for rescuing troubled property lender Hypo Real Estate (HRE) will top € 50 billion.
Last year the lender, nationalised after difficulties at its Dublin-based subsidiary Depfa, has shifted assets with a face value of € 176 billion to an external bad bank, FMS Wertmanagement.
The German government has said a loss of about € 3.9 billion is to be expected on these bad bank assets, to be shouldered by the public financial market stabilisation fund SoFFin.
But a German economist who has studied confidential HRE documents has said assets are of a “shockingly bad” quality – and that losses could be more than 10 times higher than previously thought.
“I don’t think that it will be less,” said Prof Dirk Schiereck of the Technical University Darmstadt to Stern magazine. “The quality of the portfolio is shockingly bad.”
In October 2010 a wide range of HRE assets and non-strategic business units were transferred to FMS, a bad bank with a life-span of 10 years.
The bad bank holds a variety of papers, ranging from loans against hurricanes in Florida, property loans in Tokyo and credit to the troubled Dubai World artificial island project.
In addition, the report lists some € 7 billion held in Greek sovereign debt.
Prof Schiereck based his analysis on a 378-page report from last summer when the assets were still held by HRE.
German officials said yesterday it wasn’t possible to put a “credible value” on the assets and papers. Many have another decade to run and are currently refinanced on financial and capital markets. FMS’s aim is to dispose of these assets at the best price possible, at minimum loss to the German taxpayer.
“If the papers were cashed into today there would be serious losses but, in the end, we will only know in 2020 when it’s all wound up,” said a spokesman for the finance ministry.
“Some of the assets are quite volatile and there’s a lot of up and down.”
Opposition politicians have attacked the government for “talking down” potential losses and have called for a cash boost for the SoFFin fund to cover all eventualities.
“The huge discrepancy between the forecast losses to date and the new figure cannot be explained away,” said Axel Troost, finance spokesman of the Left Party.
“The government has failed in its tactic of talking down HRE’s losses and pushing them off into a bad bank.”
