THE FUTURE of Dublin-based Depfa Bank inside the Hypo Real Estate (HRE) group was hanging in the balance yesterday after the nationalisation of the bank cleared another important hurdle.
Berlin now controls 47 per cent of HRE through German bank rescue fund Soffin, and is confident it can take full control of the group without using recently introduced expropriation legislation.
The finance market spokesman for the ruling Christian Democrats (CDU) expressed doubt that a state-owned HRE would retain its Irish subsidiary, blamed for the group’s recent liquidity problems.
“Now it’s a question of whether the Depfa activities should be hived off again to achieve the main goal of this action, a banking group with a promising future,” said Otto Bernhardt on German radio.
The finance ministry in Berlin was forced to step in last September to bail out HRE with loans and guarantees now totalling €102 billion.
As a cornerstone of Germany’s crucial covered bonds or Pfandbrief market, the capital projects’ lender is considered too big to fail.
Mr Bernhardt said the government’s priority after the takeover was to increase the bank’s equity with a capital injection of up to € 20 billion. The nationalisation would stabilise the banking group further, he said, allowing it to borrow money on markets at German government rates, half the open market rates. Berlin asked HRE shareholders to sell their shares at a small premium on the legal minimum in an offer worth a total of €290 million.
By the time that offer expired on Monday, the state holding in HRE had swelled to 47 per cent, and the government hopes to seal the deal at an egm of the bank on June 2nd.
The German rescue of HRE has already sparked two official investigations. Yesterday, a parliamentary investigation met for its first full session in Berlin. Opposition members of the parliamentary inquiry accuse the government of misleading the public and claim the full financial risk of a HRE bail-out could top €230 billion.
Meanwhile, in Brussels, the European Commission has opened its own investigation into whether Berlin’s efforts to save the bank are sustainable, and whether they distort competition.
Competition commissioner Neelie Kroes said the investigation was to “ensure legal certainty and allow interested third parties to give their views”.
HRE’s largest private shareholder, JC Flowers, has vowed to fight the looming nationalisation.
Flowers controls 22 per cent of the stock, having bought the shares last year at €24.50 a share. Selling at the rates on offer – €1.386 – would mean a loss of over €1 billion.
The Flowers consortium rejects the price on the grounds that the share value only collapsed after Berlin began talking openly of expropriation.
