German bank HRE gets total bailout of $68 bn

German bank HRE gets total bailout of $68 bn

Frankfurt: The troubled German bank Hypo Real Estate got its second bailout in as many weeks, raising the total to $68 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 Monday 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 told public Deutschlandfunk radio: “I cannot."

The government agreed a week ago to guarantee almost $36.7 billion in credit to HRE, which specialises in property financing.

On Sunday, intense talks between German banks and insurance companies resulted in a second euro15 billion guarantee for the bank, which had received guaranteed credits worth euro35 billion one week earlier.

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 hailed on Monday the second public-private bailout, which it said would allow it to keep functioning amidst the ongoing financial crisis.

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.

The move aimed to shore up confidence amid a spreading global financial crisis, in a country in which failing banks bring up particularly bitter memories of the 1930s Great Depression, which helped the Nazis rise to power.

In a bid to head off a run on banks, Steinbrueck assured German account holders they need not worry about losing a “single euro" in the crisis.

Finance ministry spokesman Torsten Albig told the business daily Handelsblatt that the estimated value of the guaranteed accounts would total euro568 billion.

The total euro50 billion lifeline for stricken HRE was agreed in crisis talks between the government, the Bundesbank central bank, market regulators and the banking sector.

Chancellor Angela Merkel’s government had scrambled to reach an accord before Asian markets opened Monday, fearing the ultimate collapse of HRE and heavy selling pressure on all German banking shares.

But in morning trading on the Frankfurt stock exchange, HRE shares shed a massive 33.69% of their value to euro4.98, while the Dax index of leading shares had dropped by 4.22% overall.

Berlin’s daily Tagesspiegel said the government had had no choice but to cobble together a plan for HRE and ensure bank deposits.