In the wake of the subprime crisis, Munich-based real estate financier Hypo Real Estate Holding AG (HRE) ran into difficulties in the last week of September 2008; the company was formed by a spin-off from HypoVereinsbank AG in September 2003. HRE was active worldwide primarily in public sector and infrastructure finance and also in commercial real estate finance. – Its subsidiary DEPFA Bank in Dublin – for which the HRE holding company had issued a letter of comfort – carelessly violated the golden rule of banking; it financed long-term (non-current) projects only on a short-term basis and thus slid into an acute financial squeeze. The resulting losses had to be borne by the parent company in Munich, which was unable to cope on its own. The effects of a default at HRE, however, would also have affected pension plans, pension funds, employers’ liability insurance associations, and German federal states and municipalities, some of which had invested hundreds of millions of euros with HRE. – In order to avert the collapse of HRE, the German government intervened. As a result, HRE was rescued by the state from October 2009 onwards by injecting almost EUR 8 billion in new capital; it was transferred entirely into federal hands. – This rescue operation met with criticism in many circles. The Management Board’s hesitant information policy triggered outrage; the Supervisory Board – which included former Bundesbank President Tietmeyer – also came under fire. Auditors called the Executive Board’s business policy and the company’s organization a “mixture of chaos and megalomania.” Chief Financial Officer Markus Fell, for example, alone collected an annual salary of EUR 450,000 and the same amount in bonuses, a total of EUR 0.9 million. – The German government also justified the nationalization on the grounds that, in the event of HRE’s insolvency, the German Pfandbrief would be discredited with unforeseeable direct and indirect consequences (disrepute). At the beginning of 2009, it became clear that HRE would need further assistance. The Bank Recovery Act, which came into force in the spring of 2009, was essentially tailored to the circumstances at HRE. – In the summer of 2009, an investigatory commission of the German Bundestag, which had been called for by the opposition parties, investigated the circumstances surrounding the bankruptcy of HRE. However, it was shown that there was no other justifiable solution for the rescue of HRE. The insolvency of a banking group of this size just a few weeks after the worldwide shock of the Lehman bankruptcy would have triggered a chain reaction with a multiple of the costs incurred by the public sector as a result of the aid. – In the summer of 2010, it emerged that HRE needed a further EUR 40 million in state guarantees. It was now decided to transfer around EUR 200 billion of HRE’s junk securities to a bad bank called FMS Wertpapiermanagement. For this, the state had to shell out another EUR 2 billion. What was left of the old HRE operated under the name Deutsche Pfandbriefbank. In the spring of 2012, it emerged that a loss of EUR 10 billion had again been incurred in the 2011 financial year. – See Absence capitalism, amortization, negative, bank bailout, reverse, bank nationalization, bank rule, golden, bank failures, bail-out, bank, systemic, Bradford nationalization, exit strategy, Fortis bailout, maturity transformation risk, home equity loan, real estate bubble, crisis, systemic, liquidity shock, million grave, moral hazard, mortgage equity withdrawal, ninja loans, Northern Rock debacle, payment-in-kind loan, mortgage bond, provincial bankers, real loan, refinancing risk, bailout, debt bomb, sovereign liability, sinking fund, Tina, too big to fail principle, corporate, state-sponsored, trust, forced expropriation. – Cf. BaFin Annual Report 2008, p. 118 (rescue takeover law tailored to HRE), BaFin Annual Report 2009, pp. 133 f. (results of the committee of inquiry into the HRE bankruptcy), pp. 202 f. (in deviation from the usual takeover regulation, the Financial Market Stabilization Supplement Act [FMStErgG] allows the acceptance period to be shortened; SoFFin obtained exemptive relief from the Securities and Exchange Commission in the USA; long road to final takeover), BaFin Annual Report 2010, p. 149 (Hypo Real Estate Holding performs relatively poorly in the stress test), p. 151 f. (resinous restructuring measures).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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