Hypo Real Estate

Hypo Real Estate

Type	Government-owned corporation
Industry	Financial services
Founded	2003
Headquarters	Munich, Germany
Key people	Manuela Better (acting CEO), Bernd Thiemann (Chairman of the supervisory board)
Products	Commercial property financing, infrastructure and public finance, capital markets and asset management
Profit	€257 million (2011)
Total assets	€236.6 billion (2011)
Owner	SoFFin
Number of employees	1,419 (2011)
Website	www.hyporealestate.com

The Hypo Real Estate Holding AG is a holding company based in Munich, Germany which comprises a number of real estate financing banks. The company's activities span three sectors of the real estate market: commercial property, infrastructure and public finance, and capital markets and asset management. Hypo Real Estate is the second largest commercial property lender in Germany.^[1]

The bank originated in 2003 from the real estate financing business of HypoVereinsbank. It employs about 2,000 people and was one of the 30 members of the DAX stock index of the largest German companies between December 2005 and December 2008, before the shares were demoted to the MDAX. Its shares were further demoted to the SDAX in September 2009. In 2007 it acquired public finance company Depfa Bank.^[2] The company remains a legal entity as a wholly owned subsidiary of the Hypo Real Estate Group.

The firm was bailed out by the Bundesbank and other German banks in October 2008 in the midst of the global financial crisis, before approving a complete nationalisation a year later.

Financial difficulties

Crisis summits

Hypo Real Estate encountered financial difficulties during the liquidity crisis of September 2008, principally due to the heavy debt burden of its Depfa subsidiary.^[3] On 29 September 2008 Finance Minister of Germany Peer Steinbruck announced that a €35 billion credit line would be extended to Hypo Real Estate from the government and a consortium of German banks.^[3]

After the first crisis summit, the supervisory board members independent from and unaffiliated to J.C. Flowers & Co. and Grove International Partners LLP resigned from the office. As successors, Michael Endres (chairman), Bernd Knobloch, Edgar Meister, Sigmar Mosdorf, Hans Jörg Vetter, Bernhard Walter and Manfred Zaß were appointed to the board.^[4]

The deal fell apart on 4 October 2008 after the banking consortium involved pulled out.^[1] A second proposed bailout was agreed on 6 October, with German banks to contribute €30 billion and the Bundesbank €20 billion to a credit line.^[5]

After the second crisis summit some politicians demanded that HRE's top management resign, among them Federal Minister of Finance Peer Steinbrück who stated that he had been kept in the dark^[6] and that it was "unthinkable" to keep dealing with them, especially after they had used lawyers against the government to attempt to evade responsibilities.^[7] CEO Georg Funke subsequently stepped down, replaced by Axel Wieandt on 31 October 2008.

Further guarantees

Via several steps, Hypo Real Estate was granted further framework guarantees by the German Financial Markets Stabilisation Fund (SoFFin) in February 2009, taking its total state funding to €52 billion.^[8]

SoFFin takeover offer

On 17 April 2009, SoFFin tendered an offer to take over Hypo Real Estate by buying and creating shares that would raise its equity stake to 90%. On 24 April 2009 the HRE governing boards recommended that shareholders approve the offer by the rescue agency.^[9] By that date, government support for the company had reached €102 billion. Under a new law passed in March, the government could force the sale if shareholders reject it.^[10]

Meanwhile, the German parliament formed a committee to investigate the HRE bailout. Opposition parties from the left and right spurred creation of the committee, while the governing centrist coalition abstained.^[11]

Nationalisation

With the German state (via SoFFin) already owning 90% of HRE, an extraordinary general meeting on 5 October 2009 approved a €1.30 per share squeeze out of the remaining private shareholders,^[12] including J.C. Flowers (which a year earlier had taken a 25% stake at €22.50 per share).^[13] The decision resulted in the complete nationalisation of the firm^[12] within a year of it having been a DAX constituent.