Ailing bank
May 28, 2010
German nationalized bank Hypo Real Estate has received an extra 10 billion euros ($12.3 billion) in public loan guarantees to protect it from renewed market turbulence.
The German government's bank rescue fund SoFFin said on Friday that it was extending its guarantee level to 103.5 billion euros because of "the current situation on financial markets."
Fund head Hannes Rehm said that the bank required the guarantees as it carried out a restructuring program.
Any failure of that restructuring process "would have huge consequences for the German economy," said Rehm.
Government bonds pose risk
The bank, which specializes in property-lending and municipal financing, is at risk from potential losses on bonds it owns that were issued by troubled eurozone countries such as Greece, Spain, Ireland and Portugal.
The bank had around 39 billion euros in exposure to such "sovereign debt" at the end of March. The worsening of the Greek debt crisis and fears that similar problems would spread to other European economies have made bond exposure a sensitive issue on money markets.
Hypo Real Estate, the most prominent German casualty of the financial crisis, ran into trouble in 2008. It was nationalized by the government the following year after successive loan guarantees and capital injections were provided by the state.
rc/AP/AFP
Editor: Kyle James