Thursday 22 February 2018

Hypo Real Estate fails Europe-wide 'stress test'

Hypo Real Estate has failed a Europe-wide banking stress test. Photo: Getty Images
Hypo Real Estate has failed a Europe-wide banking stress test. Photo: Getty Images
Thomas Molloy

Thomas Molloy

HYPO Real Estate, the mortgage lender part-nationalised by the German government after its Dublin subsidiary collapsed, has failed a Europe-wide banking stress test, Bloomberg reported yesterday.

Munich-based Hypo didn't pass the stress test on its capital, which assumes an economic slowdown and sovereign debt losses.

The lender is probably the only German bank to fail the test, Bloomberg added.

European Union regulators are examining the strength of banks as they seek to reassure investors about their resilience to potential losses amid the region's sovereign debt crisis.

The tests are being applied to 91 of Europe's biggest banks, including Bank of Ireland and Allied Irish Banks.

"The government won't let Hypo Real Estate collapse," said Andreas Plaesier, a banking analyst at MM Warburg in Hamburg. An official at Hypo Real Estate declined to comment.

Banks may be required to have a Tier 1 capital ratio, a key measure of financial strength, of at least 6pc under the EU stress tests, the same threshold US lenders faced last year.

Hypo's Tier 1 capital ratio was 7.7pc at the end of March, according to a presentation on its website dated June 2010. The lender holds €72.1bn of debt in Greece, Italy and Spain, it said in May.

Germany's bank rescue fund had provided Hypo with €7.87bn in funds but the state-owned lender has said it may require a total of €10bn from the fund.

The lender said last week that it received approval to establish a so-called bad bank to transfer as much as €210bn of investments consisting of "non-strategic assets and risk positions." The assets will be transferred this year.

Hypo has said it doesn't expect to return to profit before 2012.

The lender needed a total of €103.5bn 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 unit couldn't raise financing when the bankruptcy of Lehman Brothers froze credit markets.

Irish Independent

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