Germany's HRE gets €15 billion in guarantees

Troubled German property lender Hypo Real Estate has obtained a €15 billion euro state loan guarantee under a government rescue plan for the banking sector, a spokesman said.

The guarantee provided by the Financial Markets Stabilisation Fund (SoFFin) will cover a bank bond that HRE will use as collateral to get cash from the central Bundesbank. HRE needs the funds to maintain current operations.

It is the first private German financial institution to take advantage of a government package offering up to €400 billion in loan guarantees and up to €80 billion in capital injections.

German regional bank BayernLB has also applied for the aid, with a request for €5.4 billion, while other regional banks have said they are mulling requests as well.

The property specialist was caught in a liquidity crunch which worsened after US investment bank Lehman Brothers declared bankruptcy in September.

HRE is already the subject of a rescue plan worked out by the government, the German central bank and a financing consortium worth €50 billion, and the short-term guarantee unveiled late yesterday evening will keep HRE going until the full sum is available.

The HRE rescue earlier this month was the biggest in German history and came after the property lender was drawn into global financial turmoil through its inability to refinance debt, one of several high-profile European emergency cases.

HRE was hobbled by debts incurred by its German-Irish subsidiary, Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for sub-prime mortgages. Depfa specialises in the financing of public works projects.

Hypo found itself unable to refinance operations owing to a credit squeeze that worsened after Lehman Brothers declared bankruptcy on September 15.