Two German banks tap state funds for aid

Business Materials 21 November 2008 21:49 (UTC +04:00)

Two reeling German banks tapped state funds for billions of euros in aid Friday, dpa reported.

Hypo Real Estate (HRE), the first German bank to nearly collapse in September, said it won 20 billion euros (25 billion dollars) in guarantees from Soffin, a federal government agency with a 480-billion-euro war chest.

HRE said the underpinning from Frankfurt-based Soffin would improve its liquidity and help it refinance debt that falls due up to January 15, 2009.

The Munich-based mortgage lender was rescued by an earlier, 50-billion-euro batch of guarantees from the government and other commercial banks.

The other bank needing a bail-out was one of Germany's nine landesbanks, which are run by various state governments.

Landesbank Baden-Wuerttemberg (LBBW) is to receive a 5-billion euro (6.3-billion-dollar) capital injection, it announced Friday amid reports that the world financial crisis had forced it deeper into the red.

The LBBW's owner, the state of Baden-Wuerttemberg, is to provide the capital support. Shareholder sources told Deutsche Presse-Agentur dpa the bank is likely to run up a 2-billion-euro loss in the current year.

In announcing the capital injection, LBBW became the latest German bank to seek out state aid to help it limp through the financial crisis.

Munich-based publicly owned BayernLB was the first landesbank to ask for state assistance, tapping Soffin last month for 5.4 billion euros.

The moves are also likely to add to pressures for consolidation in Germany's state banking sector, in particular between LBBW and BayernLB.

In October alone, LBBW is estimated to have clocked up an 800-million-euro loss, with the Stuttgart-based bank's loss for the first nine months of the year coming in at 900 million euros.

The capital injection helped to boost LBBW's core capital ratio to 9 per cent from 7.3 per cent.