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State aid: Commission approves restructuring plan of Hypo Real Estate and clears the aid

European Commission - IP/11/898   18/07/2011

Other available languages: FR DE

European Commission - Press release

State aid: Commission approves restructuring plan of Hypo Real Estate and clears the aid

Brussels, 18 July 2011 – The European Commission has approved under EU state aid rules restructuring aid consisting of capital injections of € 10 billion, an asset relief measure with an aid element of about € 20 billion, as well as liquidity guarantees amounting to €145 billion for the banking group Hypo Real Estate.

The Commission concluded that the restructuring plan of HRE and its core bank pbb Deutsche Pfandbriefbank (pbb) is liable to restore pbb's long-term viability while ensuring that the bank and its former owners adequately contribute to the restructuring costs and that the distortions of competition created by the aid are mitigated. All business activities of the HRE group will be phased out, except for the activities of pbb. At the end of 2011, pbb's adjusted balance sheet size will be around 85% smaller than HRE group's balance sheet size at the end of 2008. This will adequately address the distortions of competition created by the massive state support received by the German banking group during the financial crisis.

Commission Vice President in charge of competition policy Joaquín Almunia said: "Today's decision brings one of the most significant financial crisis state aid cases to a constructive close. HRE and its core bank pbb Deutsche Pfandbriefbank are significantly downsizing to limit the competition distortions caused by the huge state support they needed to survive the crisis. The restructuring plan seeks to ensure that the serious liquidity problems which threatened HRE's existence some years ago cannot be repeated, so as to ensure the future viability of pbb."

The cornerstones of the restructuring plan are:

  • Only the core bank pbb will be active in the markets; with two strategic business lines: real estate finance and public investment finance, both targeting assets eligible for German covered bonds, either in the form of mortgage or of public sector bonds. All other activities, in particular budget finance, infrastructure finance, capital markets and asset management activities, will be phased out.

  • The other main subsidiary of HRE Holding, DEPFA Bank plc., is to be run-down and will not generate any new business.

  • Impaired assets transferred to HRE's winding-up institution FMS-WM (FMS Wertmanagement AöR) will be wound down.

  • pbb's future activities are of considerably smaller scale than HRE's activities before the crisis, in terms of balance sheet size, volume of new business, workforce, branch network and geographical scope.

  • pbb will carry out its activities based on a stable funding approach and improved internal control systems.

    The Commission found the restructuring aid to be in line with its guidelines on restructuring aid for banks (see IP/09/1180) and its guidance for the treatment of impaired assets (see IP/09/322); subject to the implementation of the restructuring plan and the fulfilment of the commitments provided by Germany regarding HRE's restructuring.

Background

In September 2008, HRE faced a severe liquidity shortage after the interbank lending markets dried up in the aftermath of the Lehman Brothers bankruptcy. Subsequently, HRE benefitted from nearly 10 billion of capital from Germany (FMS-WM, the winding-up institution of HRE, is recipient of a part of that capital). In addition Germany provided liquidity guarantees of 145 billion. HRE also benefitted from an asset relief measure, provided by Germany, with an aid element of about 20 billion. HRE was nationalised by Germany in 2009.

On 1 April 2009, the German authorities notified the first version of the restructuring plan for HRE. On 7 May 2009, the Commission opened an in-depth investigation because it had doubts about the bank's viability and the adequacy of the measures aimed at burden sharing and minimising distortions of competition (see IP/09/712). The in-depth investigation was extended on 13 November 2009 (see IP/09/1708) and again on 24 September 2010 (see IP/10/1172), in order to cover additional aid measures.

The restructuring plan of 1 April 2009 was finally updated on 14 June 2011.

The non-confidential version of the decision will be made available under the case number SA.28264 in the State Aid Register on the DG Competition website once any confidentiality issues are resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

Contacts :

Amelia Torres (+32 2 295 46 29)

Maria Madrid Pina (+32 2 295 45 30)


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