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Germany

Germany strings out billions more in guarantees to troubled HRE bank

After narrowly avoiding bankruptcy last year before it was nationalized, Germany's troubled Hypo Real Estate bank is to get another 40 billion euros in state guarantees in a fresh bid to ward off insolvency.

A briefcase full of euro notes

The money will help HRE as it moves assets to a "bad bank"

Germany's banking sector stabilization fund SoFFin said it would "increase the volume of guarantees (for Hypo RE) to an amount up to 40 billion euros ($51 billion)," adding that the additional guarantees would be available to the bank until the end of the year as HRE works to offload high-risk assets into a "bad bank."

Banking industry sources told the dpa news agency the bank would now need an additional 20 billion euros for 2010 plus 20 billion euros to cope with short-term liquidity problems. German media quoted other sources as saying that the new state guarantees were a "precautionary measure."

The property lender has already received nearly 8 billion euros in cash injections from SoFFin along with 103.5 billion euros in loan guarantees. HRE, which specializes in property lending, was the only German bank to fail a Europe-wide stress test in July.

Liquidity squeeze

A HRE sign and with the green man on a street crossing light

HRE was nationalized in 2008

The bank used the state guarantees refinance its debt on the financial markets at affordable interest rates. In July it created a "bad bank" to which it plans to transfer 210 billion euros in risk positions and non-strategic assets.

It is an "extremely complex process and certainly exceptional, given the volume" of assets to be transferred, but its success would mark "a decisive turning point in the restructuring of Hypo Real Eastate," SoFFin spokesman Hannes Rehm said in a statement.

The bank was nationalized last year after narrowly avoiding bankruptcy in late 2008. It is highly exposed to bonds issued by troubled eurozone countries like Greece, Ireland, Italy, Portugal and Spain.

The Munich-based bank said last month it had reduced its losses, but declined to say how much it expects to lose this year or to issue a forecast for 2011.

Author: Nigel Tandy (AFP/dpa)

Editor: Sean Sinico

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