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Business

Leaders vent anger at extra assistance for 'zombie' bank

The nationalized lender Hypo Real Estate bank has been granted loan guarantees to the tune of 40 billion euros ($51 billion) by the government's financial sector rescue fund. But not everyone is pleased about it.

stacks of euro notes

HRE began a "bad bank" in July to hold its toxic assets

The recent 40 billion-euro ($51 billion) guarantees for Germany's troubled Hypo Real Estate bank have been sharply criticized by parliamentarians from the ruling coalition.

The Christian Democratic Parliamentarian (CDU) Leo Dautzenberg said the announcement of the new guarantees happened "by the fog of night." The financial expert of the liberal Free Democratic Party, Frank Schaeffler, said the HRE was a "zombie bank" without a firm foundation.

Germany's banking sector stabilization fund SoFFin announced on Friday that it would increase the volume of guarantees to about 40 billion euros to help keep the bank solvent.

Scathing criticism

Dautzenberg said he wanted more information on the why the money has been granted.

the HRE logo

The Munich-based bank failed the stress tests in July

"The financial committee will critically examine the reasons surrounding the recent guarantees," he told financial newspaper Handelsblatt.

The FDP representative Shaeffler said he was afraid the HRE bank would become a bottomless pit at the expense of the taxpayer.

The HRE bank, which nationalized last year in order to avoid bankruptcy, has since become heavily dependent on state guarantees in order to refinance its debt at competitive interest rates. It was the only German bank to fail the Europe-wide 'stress tests' in July.

Author: Sarah Harman (Reuters, AFP)
Editor: Ben Knight

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