Germany’s Hypo strikes deal to dodge finance squeeze

German lender Hypo Real Estate struck a last-minute deal with a consortium of banks for credit to resolve a refinancing squeeze it faced, the group said early on Monday.
Earlier, sources with knowledge of the matter had said Hypo was in urgent talks with German banking regulator Bafin and the finance ministry as it sought a solution for its problems.
The bank, which lends money for property projects and to governments, had been examining measures including the sale of assets such as loan portfolios to circumvent the squeeze, one of the sources said.
Then early on Monday morning, the emergency talks yielded a result with a group of German banks extending credit that will tide the group over. Hypo did not name the banks or say how much of a loan it got.
It said the deal meant there would be no dividend for shareholders this year but writedowns on the book value of part of its business.
Hypo, with a market value of just under $4 billion, is worth just a fraction of Germany's flagship lender Deutsche Bank
Nonetheless, its difficulties could have undermined confidence in Germany's biggest economy, which had been one of the hardest hit outside the U.S. by the market turmoil.
Germany's central bank, or Bundesbank, which had been involved in the discussions, said the agreement should guarantee the viability of the group.
Hypo, which lends to such borrowers as Italy, Japan, Tokyo and Istanbul, ad been especially vulnerable to the freeze in interbank lending, which worsened after the collapse of Wall Street investment bank Lehman Brothers.
Unlike its bigger rivals such as Commerzbank, Hypo does not have any customer deposits to fall back on as banks grow increasingly reluctant to lend to one another.
Hypo relies on this interbank market to borrow as well as on money lent by Germany's central bank to refinance roughly 50 billion euros ($73 billion) yearly, according to a company figure released earlier this year.
Most of the demand for this short-term unsecured refinancing comes from Hypo's business of lending to governments, who often require help bridging temporary holes in their budgets.
Short-term finance such as this often expires at the end of the quarter — next Tuesday — and this put pressure on Hypo to find a solution fast, one of the sources had told Reuters.
Earlier this year, German watchdog Bafin had examined an emergency takeover of Hypo in the event that the bank ran into refinancing difficulties, sources familiar with the matter have said.
It had lined up Commerzbank as a would-be buyer, they said, but the plan was never used.