Tuesday May 5, 11:48 AM
German bank HRE posts sharp first quarter loss
By Etienne Balmer
FRANKFURT (AFP) - German bank Hypo Real Estate (Xetra: 802770 - news) (HRE) posted a sharp first quarter loss on Tuesday as the state pursued its bid to nationalise the troubled property lender despite opposition from its biggest shareholder.
"The first quarter of 2009 again posed a major challenge for the group and its employees in market conditions which continued to be difficult," bank chief Axel Wieandt said in a statement.
But he also claimed "good progress" in turning the bank around with plans to save 600 million euros (800 million dollars) by 2011 though a drastic reduction of its activities.
In the first quarter of 2009 however, the bank posted a net loss of 382 million euros, compared with a profit of 148 million euros in the same period a year earlier.
HRE, which plays a key role in financing infrastructure and providing credits to local governmental bodies, was slammed by interest payments of 129 million euros on mostly public aid of 102 billion it has gotten since October.
The bank also raised its provisions for losses on loans and advances to 196 million euros from 33 million "as a result of the considerable deterioration of the global economy and also the deterioration in the situation on the real estate markets."
Wiandt told a telephone conference with analysts that HRE would not post a profit this year and warned that more asset depreciations should be expected in the coming months.
Last year, HRE posted a massive loss of 5.461 billion euros, in large part owing to problems at its Irish unit DEPFA Bank (Xetra: DEP.DE - news) , which suffered heavy losses on risky US investments.
It was saved by government action because officials fear that a collapse of HRE would prompt the sort of financial market chaos that followed the failure of US investment bank Lehman Brothers (NYSE: LEH - news) in September.
The German government has now launched a public offer for all outstanding HRE shares that had a deadline of midnight on Monday and which could result in the first full bank nationalisation since the republic's birth in 1949.
As of late Monday, the state had acquired a total stake of around 41 percent, but the largest HRE shareholder, US investment fund JC Flowers, has opposed the deal, and could be expropriated under a law recently passed by the German parliament.
Berlin nonetheless hopes to avoid such a radical move that could harm its image among investors, and might manage to reach its goal by another method.
A capital increase could be voted at a shareholder's meeting on June 2 that would allow the state to raise its stake to more than 95 percent, putting it in a position to force minority shareholders to sell their stakes via a so-called "squeeze out" operation.
In a positive development, Wieandt said that HRE had drummed up 600 million euros worth of new real-estate financing business in the first three months of the year, mostly with existing clients.
But the bank also indicated it was concerned over financing in the United States, and to a lesser extent also in Britain, Germany and Spain.
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