The bad bank of nationalised mortgage lender Hypo Real Estate will swap Greek sovereign bonds with a face value of almost 1 bln euros ($1.4 bln) for new Greek debt as part of the second rescue package for Athens.
The management and supervisory boards of FMS Wertmanagement said in a statement on Friday they were prepared to participate in a Greek bond swap that ratings agencies deemed equal to a selective default.
"Naturally we would like to make our own contribution, particularly since the prospects for a full repayment of the remaining Greek bonds in our portfolio should clearly improve," Chief Risk Officer Christian Bluhm said in a statement.
FMS Wertmanagement was created when toxic loans and securities with a face value of 173 bln euros were transferred from Hypo Real Estate in October of last year, creating Germany's largest bad bank.
The lender said its overall exposure to Greek loans and bonds amounted to 8.76 bln euros, none of which has so far been written down.
Of that, 13 bonds with a nominal value of 975 mln euros mature prior to 2020, qualifying them for the bond swap. A spokesman said the bank could not yet say what financial hit it would take as a result of the swap.
Credit markets have been worried Athens might find it harder than expected to convince banks to participate in the swap, a key political prerequisite for euro zone governments to fund a second bailout package for Greece.
STATE AID
Separately, Hypo Real Estate said its Irish unit Depfa Bank Plc paid out 800 mln euros to FMS Wertmanagement as required by a previous agreement, adding Depfa will transfer another 790 mln euro if its capital base remains sufficiently solid.
"With the payment HRE passes a portion of the support received from the Federal Republic of Germany to FMS Wertmanagement," Hypo Real Estate said in a statement, adding the payment would not impact its income but would reduce its equity.
However, the transfer will not reduce the bill for German taxpayers since the money coming in from HRE was already calculated into funds the bad bank was allocated by German bank rescue fund SoFFin to absorb anticipated losses.
In total, SoFFin earmarked 3.87 bln euros for FMS, of which the bad bank has already pencilled in 3 bln to absorb other losses, meaning it is likely that it will need to ask the government for further funds down the line.
The bad bank already sparked an upward revision of Germany's 2010 government deficit by 0.9 percentage points to 4.3% after Berlin had to revalue the risks transferred to the entity, at an additional cost to taxpayer of 22.3 bln euros, according to the Federal Statistics Office.
