Hypo Real Estate eyes more bad news

German property lender Hypo Real Estate today posted a third-quarter net loss of €3.1 billion and said it expected more bad news by the end of the year. The loss was much worse than expected by analysts, who had forecast a loss of €2.2 billion.

It 'is largely attributable to the complete write-off of approximately €2.5 billion of goodwill and other intangible assets recognised at Hypo Real Estate Holding that have arisen as a result of the first-time consolidation of Depfa,' a German-Irish subsidiary, an HRE statement said.

Depfa was hit badly when the US investment bank Lehman Brothers declared bankruptcy in mid September.

The remaining €600m in losses 'were due to various factors, including the consequences of the collapse of Lehman Brothers, the situation in Iceland, a further impairment relating to the investment in Babcock & Brown and other losses in value relating to the CDO holdings of Hypo Real Estate,' the statement added.

CDOs, or collateralised debt obligations, are often risky securities built from a portfolio of fixed-income assets, including sub-prime US mortgages on which borrowers have defaulted in large numbers.

The property specialist was caught in a liquidity squeeze which worsened after Lehman Brothers went bankrupt, and in late October it obtained €15 billion in state loan guarantees under a rescue plan for the banking sector.

It had already benefited from a tailor-made rescue package worked out by the government, the German central bank and private banks worth €50 billion, to which it should have access tomorrow.

Meanwhile, it has begun to restructure its activities, but the bank warned that looking ahead, 'the market environment remains difficult'.

HRE was swamped by debts incurred by Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for subprime mortgages. Depfa specialises in the financing of public works projects.