In Germany Are Born First Bad Bank

By Author: Luciano Barile
Total Articles: 62
Comment this article

After WestLB in Düsseldorf also Hypo Real Estate (HRE) in Monaco has asked yesterday the opening of a bad bank. The decision was expected, but the surprise is in the volume of toxic assets that the HRE is preparing to park: 210 billion of face value, significantly higher than expected. The offer of the State Fund to support rescue blown German banks in their effort to create healthy financial institutions through the so-called Bad Banks - banks in which banks deposit securities at risk who have lost so much value and are no longer marketable - had raised previously in banking circles rather lukewarm reactions. One can certainly say that institutions have lined up to secure access to the Fund blown save. A step that requires the banks' decision to 'put the cards on the table' and to ensure the transparency of their actual financial situation. The only German bank which to date had shown a real interest in was the bad bank WestLB, which on Christmas Eve decided to transfer to a similar institute for securities settlement a total nominal value of around 85 billion euros. In parallel with the transfer of licenses, WestLB received ...
... by the Fund blown another injection of 3 billion euro, a circumstance which had raised several concerns in the EU Commission, which, even in May last year had approved an initial package of aid in favor of the German Landesbank, Düsseldorf, provided, however, a substantial reduction, about half of the total assets of the bank. Apart from the WestLB, another bank that had shown some interest in a Bad Bank was the institution's real estate Hypo Real Estate (HRE). Yesterday, as we said earlier, the large bank of Monaco has decided to make the pass and park in a body funded by the winding blowing a volume of 210 billion between toxic securities, bonds and real estate loans. Last year, the HRE had experienced dramatic moments which forced the German state to decide without delay on the nationalization of the bank in order to prevent the collapse of the entire German financial system. Until now the German State has intervened with about 100 billion euros for the HRE, including guarantees and capital injections. In environments of the Federal Ministry of Finance is expected, such as WestLB, which also Hypo Real Estate, and total assets of the bank, currently around 370 billion euros, will be almost halved. From this total assets must be subtracted but also those areas of activity that the HRE will sell in the foreseeable. The volume of the reduction of total assets HRE, however, also depend on the decisions to be taken in Brussels. At the moment talks are under way in this regard between the EU Commission, on the one hand, and the direction of the HRE and the government of Berlin, on the other. The problem is to clarify the volume and the relative degree of risk of toxic assets that HRE will be deposited in a bad bank and also what areas of business the bank intends to divest. Only after this has been clarified, the German Federal Government will be able to specify the amount of the new injection of capital to be made through the Fund blown. Now it remains to be seen whether after WestLB and other HRE after German banks will decide to use a bad bank. For sure is that the situation of banks such as BayernLB, or as the HSH Nordbank and Landesbank Baden-Wuerttemberg (LBBW) is not altogether so different from WestLB and HRE. He will know something more definite at the end of the month when the terms expire for the granting of aid by the Fund blown. The difficulties of German banks, public banks in particular, are far from over and surprises are yet to come. He also confirmed reports that the same Federal Association of Private Banks (BdB) had plans to open its bad bank. Currently, the BdB is trying to obtain a banking license for the security deposit fund managed by the Association itself, which would enable it to rush to the aid of private banks in difficulty using their own experts. Meanwhile, some German banks are seeking to remedy the loss of image after the news of substantial bonuses paid to their managers, despite the heavy losses caused to clients of their bank. Deutsche Bank is planning to reduce the bonus in case of success and making the most malus in case of failure and at the same time to increase the basic salaries of its managers. If we know more at the conference of the 2009 budget in early February. Even Commerzbank (25% of the German State) would have attempted to increase from 500,000 to 750,000 euro fixed salary of their managers, to offset the cuts in bonuses, but would have met with the veto of the government.
Luciano Barile