Depfa was ‘final nail in coffin’ of Hypo Real Estate

Dublin-based Depfa bank was the "final nail in the coffin" of Germany's Hypo Real Estate (HRE) but not the sole trigger of the group's 2008 state bailout.

The admission by leading figures in Berlin, Frankfurt and Dublin to The Irish Times casts new light on the dramatic events of five years ago as HRE tries to auction off what remains of Depfa, once a leading player in the International Financial Services Centre.

"HRE would have gone down on its own, because of its own business," said Michael Endres, a former Deutsche Bank executive. "Whoever bought [Depfa] knew it wasn't a solid business."

Dr Endres was appointed to the HRE board after the state-led rescue to prepare the bank’s nationalisation in 2009 and is familiar with the group’s accounts and the details of the Depfa takeover.

Short-term credit
Originally a German bank, Depfa moved its headquarters to Dublin and grew rapidly, financing long-term infrastructure loans with short-term credit. In October 2007, as Depfa began to experience financial difficulties, it agreed to be taken over by HRE for €5.7 billion.

Eleven months later, after Lehmann Brothers’ collapse saw liquidity markets dry up, the German federal government and private banks stepped in to rescue the bank, ostensibly to prevent another bank collapse triggering further shock waves on financial markets. German loans and guarantees to the group to date total €124 billion.

A year later the bank was nationalised, squeezing out shareholders and effectively eliminating institutional and private investment in HRE.

German politicians concede off the record what growing number of German bankers and lawyers admit in public: that poor management and oversight structures at German banks created problems far beyond those created by their Dublin subsidiaries.

"The Depfa takeover was ... the final nail in the coffin of HRE," said Felix Weigend, a Munich lawyer bringing a civil compensation suit on behalf of former HRE shareholders.

A senior ex-HRE executive claimed on German television that HRE was set up by HypoVereinsbank a decade ago as “one big bad bank” for its problematic property portfolio.

HRE has until next year to auction off what remains of Depfa, according to the EU-imposed terms of its rescue package.