Bad banking
January 22, 2010
Crisis-hit property lender Hypo Real Estate (HRE) will put a multi-billion euro package of holdings into the country's largest "bad bank."
The move will help the nationalized group to rebuild after it was hit heavily by the financial crisis in September 2008. HRE is to shift 210 billion euros ($296 billion) of assets into the bad bank, with the move set to take place in the second half of 2010.
The news was announced on Thursday, one day before the end of a six-month period in which banks can apply to form bad banks where they can place "toxic" assets that have become liabilities.
The German government paved the way for creation of bad banks as a way to help companies to get rid of unwanted assets and protect their balance sheets. Advocates of the plan say it leaves a healthier core bank that can carry on business.
However, many banks and lenders have avoided taking part in the belief that the program presents more disadvantages than advantages.
Many banks have said the rules of the bad bank program would add costs for banks taking part while doing little to cut risks to shareholders.
HRE was Germany's highest profile casualty of the financial crisis, nearly collapsing in 2008. It needed more than 100 billion euros in guarantees to save it, which came mainly from the German government.
The European Commission will have to decide whether HRE's plan complies with European Union rules on state aid.
rc/AFP/dpa
Editor: Kyle James