OT - Hypo Real Estate Said to Fail EU Banking Stress Test (Update1)
July 19 (Bloomberg) -- Hypo Real Estate Holding AG, the German lender taken over by the government following the financial crisis, failed a Europe-wide banking stress test, two people familiar with the results said.
Hypo Real Estate didn’t pass a stress scenario on its capital that assumes an economic slowdown and sovereign-debt losses, said the people, who declined to be identified before an announcement on July 23. An official at the Munich-based lender declined to comment.
European Union regulators are examining the strength of banks as they seek to reassure investors about the firms’ resilience to potential losses amid the region’s sovereign-debt crisis. The tests are being applied to 91 of Europe’s biggest banks, including 14 German lenders.
“The government won’t let Hypo Real Estate collapse,” said Andreas Plaesier, a banking analyst at M.M. Warburg in Hamburg.
Banks may be required to have a Tier 1 capital ratio, a key measure of financial strength, of at least 6 percent under the EU stress tests, the same threshold U.S. lenders faced last year, said two people briefed on the talks.
Hypo Real Estate’s Tier 1 capital ratio was 7.7 percent at the end of March, according to a presentation on its website dated June 2010. The lender holds 72.1 billion euros ($93.4 billion) of debt in Greece, Italy and Spain, it said in May.
Bad Bank
Germany’s Soffin bank-rescue fund provided Hypo Real Estate with 7.87 billion euros in funds by the end of March. The state- owned lender has said it may require a total of 10 billion euros from the fund.
The lender said on July 8 that it received approval to establish a so-called bad bank to transfer as much as 210 billion euros of investments consisting of “non-strategic assets and risk positions.”
The assets will be transferred in the second half of this year, according to the German Financial Markets Stabilization Agency, which manages the bank-rescue fund.
Hypo Real Estate has said it doesn’t expect to return to profit before 2012. The lender needed a total of 103.5 billion euros in credit lines and debt guarantees from the state and financial institutions to save the company from collapse in 2008 after the lender’s Dublin-based Depfa Bank Plc unit couldn’t raise financing when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.
