Germany, banks in showdown over Hypo Real rescue
BERLIN (Reuters) - The fate of German lender Hypo Real Estate hung on the outcome of a showdown on Sunday between Chancellor Angela Merkel's government and banks over who would foot the bill for a bailout.
Banks and insurers withdrew their support for a government-led 35 billion euro ($48.50 billion) rescue deal for HRE after new refinancing problems came to light at the Munich-based lender.
Berlin scrambled to arrange talks to hammer out a new deal before markets open on Monday and also announced that it would provide an unlimited guarantee for private deposit accounts as part of its reaction to the banking crisis.
The banks involved in the talks welcomed the deposit guarantee as a sensible step and were confident agreement could be reached in the coming hours, a banking source familiar with the situation said on Sunday, adding "we are making progress."
Earlier on Sunday, Merkel and her Finance Minister Peer Steinbrueck, speaking at a hastily arranged news conference, expressed exasperation at HRE and the banks that pulled out of its rescue.
"I am pretty angry that the management of (HRE) in the last few days has revealed a further liquidity hole of unknown size," Steinbrueck said.
"The federal government refuses to be forced into some sort of shared responsibility by this bank or to put the entire burden of the risks on taxpayers."
HRE is relatively small when compared with other firms in Frankfurt's blue-chip DAX index of leading companies, but its role as a lender for commercial property, infrastructure and government financing makes it a major financial player.
It has no depositors like a conventional retail bank, but it accounts for about a fifth of Germany's 900 billion euro Pfandbrief -- or covered bond -- market, which is a crucial source of refinancing for the financial sector.
Merkel, back in Berlin after crisis talks on Saturday in Paris with her French, British and Italian counterparts, said she would not allow HRE's problems to spill over to the entire banking system.
Steinbrueck made clear that Berlin was focused on finding a solution for HRE alone.
SHOWDOWN WITH BANKS
Berlin has staunchly resisted pressure from other European partners, including France, for a European-wide rescue package for banks, saying problems should be handled on a case-by-case basis. Banks, however, are keen for a general package along the lines of the $700 billion bailout agreed in the United States.
"If the United States can adopt such a package, then Europe should be ready to find a similar solution," Deutsche Bank Chief Executive Josef Ackermann said on Wednesday.
One source involved in the HRE talks said the lender needed to refinance 60 billion euros by the end of 2009, 20-25 billion more than initially expected.
HRE spokesman Hans Obermeier dismissed a report that HRE could need up to 100 billion euros in liquidity as "absurd" from today's perspective.
HRE said on Saturday that the banks and insurers that had initially indicated they would absorb 8.5 billion euros of the 35 billion euro rescue had dropped their support for the plan.
Talks among officials from the German government, central bank, financial regulator and banks and insurers to save Hypo Real Estate were expected to last late into Sunday night.
HRE has a market capitalization of about 1.5 billion euros, compared with over 30 billion for Deutsche Bank, the country's biggest lender, and 10 billion for No. 2 Commerzbank
.
HRE said on Saturday it was investigating alternative measures and that its major shareholders were standing by the bank. "We are fighting for the future existence of the company," Obermeier said on Saturday.
So far, four German banks have been bailed out in the wake of the credit market turmoil.
(Additional reporting Iain Rogers and Noah Barkin in Berlin; by Philipp Halstrick, Patricia Uhlig, Jonathan Gould and Michael Shields in Frankfurt, and by Christian Kraemer in Munich; Editing by Erica Billingham and Kenneth Barry)