The troubled German bank Hypo Real Estate got its second bailout in as many weeks, raising the total to €50 billion as shock waves from the US-bred international financial crisis rattled deep fault lines in Europe's banking sector.
German Finance Minister Peer Steinbrueck said today he would not rule out an increase in a state-backed guarantee for the country's fourth biggest bank, in what is already the biggest financial bailout in the country's history.
It appeared that private banks and insurance companies would shoulder the burden of the latest rescue package, but asked if he could rule out the state raising its initial guarantee for HRE, Steinbrueck said he could not.
The government agreed a week ago to guarantee almost €27 billion in credit to HRE, which specialises in property financing.
Intense talks between German banks and insurance companies yesterday resulted in a second €15 billion guarantee for the bank, which had received guaranteed credits worth €35 billion a week earlier.
Analysts say that the bank had fallen victim to speculation by its German-Irish unit Depfa. Depfa, based in the IFSC, had pursued long-term projects with heavy loans and generally ensured refinancing only at the last minute, which due to the current global credit crunch was no longer possible.
German financial institutions are struggling to keep the bank afloat as problems triggered by the international financial crisis hit banks from Iceland to Greece, with governments buying stakes in Belgian, British and Dutch banks.
HRE today hailed the second public-private bailout, which it said would allow it to keep functioning amidst the ongoing financial crisis. 'We are very thankful for the backing of all those involved,' HRE boss Georg Funke said in a statement.
'The solution guarantees the stability of the Hypo Real Estate Group, which will have enough liqudity and will be able to continue functioning even as the financial crisis continues,' Funke added.
German Chancellor Angela Merkel warned however that 'those who managed their company in an irresponsible way will have to answer for it,' and Steinbrueck said it was 'inconceivable to be able to continue working with the present management' of HRE.
On Sunday, a turbulent day in Europe's biggest economy, the government had also extended a blanket guarantee for all personal bank deposits to avert panic withdrawals.
Finance ministry spokesman Torsten Albig said that the estimated value of the guaranteed accounts would total €568 billion.
