Navigation path

Left navigation

Additional tools

Other available languages: FR DE


Brussels, 2nd October 2008

State aid: Commission approves German rescue aid package for Hypo Real Estate Holding AG

The European Commission has authorised, under the EC Treaty’s rules on state aid, loan guarantees totaling €35 billion that the German Federal Government, together with a group of German financial institutions, intends to provide for covering Hypo Real Estate's re-financing needs until April 2009. The Commission concluded that the measures comply with EU rules on rescue aid. The approval of the rescue aid measure has no bearing on whether any future measures taken by the German authorities to support a restructuring would be similarly approved. Any such measures would have to be assessed on their own merits according to the rules on restructuring aid to establish whether aid was involved, and if so whether sufficient compensatory measures to offset potential distortions of competition were put in place.

EU Competition Commissioner Neelie Kroes said: "This case shows once again that, with good cooperation from the Member State concerned, the Commission can move very quickly. It demonstrates that state aid control is not part of the problem but part of the solution for ensuring that measures designed for financial stability can be implemented with legal certainty. I look forward to continue working closely with the German authorities during any discussions on the future restructuring or liquidation of Hypo Real Estate Holding AG."

Hypo Real Estate Holding AG (HRE group) has a balance sheet of €400 billion and consists mainly of three German banks – Hypo Real Estate Bank AG, Hypo Real Estate Bank International AG and DEPFA Deutsche Pfandbriefbank AG – as well the Irish DEPFA plc. The banks of the HRE group belong to one of the largest issuers of covered bonds (Pfandbriefe).

By end-September, the group faced a liquidity crisis due to its short-term refinancing strategy as the crisis of confidence among banks worsened in mid-September 2008.

With the intention of preserving financial stability, the German Federal Government together with a group of German financial institutions intends to provide loan guarantees totalling €35 billion, for covering HRE's re-financing needs until April 2009, via a newly created special purpose vehicle (SPV). Such a guarantee is necessary for attracting liquidity from a private consortium of German financial institutions and for allowing the SPV to tap additional emergency liquidity lines from the German Bundesbank. As collateral, HRE provides a package of securities and loans with a nominal value of €42 billion and the shares of its subsidiary banks. Until finalisation of this package, an upfront emergency rescue loan will be provided by a group of German financial institutions totalling €15 billion.

The Commission received details of these measures on 30 September 2008. The Commission considers that the guarantee provided by the Government constitutes state aid. However, the aid enables the HRE group to keep afloat for the time needed to work out a restructuring plan.

These aid measures can therefore be authorised as rescue aid in line with the EU Guidelines on state aid for rescuing and restructuring or liquidating firms in difficulty. Under these rules, rescue aid must be given in the form of loans or guarantees lasting no more than six months. A subsequent restructuring plan has to include a compatibility analysis for all measures undertaken including eventual structural measures. If a restructuring plan were to involve state aid, it would have to be assessed on its own merits under the rules on restructuring aid.


The Hypo Real Estate Bank AG and the Hypo Real Estate Bank International AG concentrate on national and international mortgage business. DEPFA Deutsche Pfandbriefbank AG and DEPFA bank plc. specialised in government and infrastructure financing as well as capital market activities and asset management for mortgage products. DEPFA, which had been taken over by HRE group in summer 2007, financed its projects via extremely short-term loans.

By end-September, the HRE group faced a liquidity shortage due to its short-term refinancing strategy as the crisis of confidence among banks worsened following Lehman Brothers Holdings filing for bankruptcy protection. Interbank lending markets are displaying signs of intensive strains since the start of the current credit crisis last summer. In this environment, the up to €35 billion short-term refinancing needs of DEPFA were too large to bear for HRE group.

The guarantee – organised via a newly created SPV with a banking license - limits the risk for private banks. Potential losses of up to €14.2 billion are to be split 60:40 between the private financial institutions and the German Government, whereas the maximal private loss is limited to €8.5 billion. Losses going beyond €14.2 billion are shouldered by the German Government alone. Apart from the guarantee, no government funds are foreseen for the HRE group. The guarantee would only come into force, once the HRE provided collateral becomes insufficient for covering eventual losses. The collateral consists of the nominal amount of €42 billion of securities – with a current mark-to-market value of €15 billion – and the shares of HRE's subsidiaries.

Side Bar