Brussels, 24/09/2010 (Agence Europe) - On Friday 24 September 2010, the European Commission temporarily authorised emergency measures involving a transfer of approximately €200 billion of toxic and non-strategic assets into a winding-up institution, and additional state guarantees of up to €40 billion for the German bank Hypo Real Estate (HRE), for reasons of financial stability. This should cover the bank's immediate cash flow needs. A Commission spokesperson stressed that the authorisation was only 'temporary' and did not in any way prejudge the final decision that will be taken about whether these measures are compatible with EU state aid rules. The in-depth investigation launched by the Commission on 7 May 2009 to examine HRE's restructuring will be extended to cover these measures and others.
The transfer of €200 billion authorised on Friday does not mean that the bank will actually get the €200 billion, but rather than HRE will transfer assets based on an accounting value of €200 billion, explained the Commission spokesperson. In other words, the bank has been split into two separate parts - the safe part and the dangerous part. The debt burden has been separated off from the bank, but has not been paid and while the bank has been relieved of a burden, it will not be receiving any cash, explained the spokesperson.
The spokesperson explained that the state guarantees were a 'liquidity guarantee and a winding-up guarantee,' each to the value of €200 billion, notified by the German authorities earlier this month and provided by SoFFin (a German fund to aid the financial industry in the wake of the financial crisis). The guarantees should cover the bank's immediate cash-flow needs in the run-up to and also during the process of transferring the toxic assets to FMS Wertmanagement, the winding-up institution. Here too, this is a temporary authorisation of an emergency measure because the German government feels that HRE could run out of cash by 30 September 2010, before the toxic assets are told off to FMS.
EU Commissioner Joaquín Almunia said: 'At this stage I still have doubts about the long-term viability of HRE' which was severely hit by the financial crisis and nationalised in 2009. It has already had state guarantees of €105 billion and a state bailout of around €7.9 billion. In this connection, Germany recently notified to the Commission public capital injection of around € 2.1 billion by SoFFin, but this has not been covered by Friday's decision. It will, however, be covered by the overall analysis of the HRE's restructuring. (F.G. trans fl)