Saturday, October 04, 2008

Hypo Real Estate And The Art Of Reading The Latest Interim Report.....

I´m a little bit late on this story but this is indeed one more example of how incompetent the German "elite" is in dealing with the financial crises .....One week after one of the biggest bailouts in history with close to € 35 billion (it was still unclear how big the part from the German banking and finance sector and the taxpayer shoud habe been, rumors were running that the guarantee from the "private" sector was € 8 billion and the rest was provided via the German taxpayer ) and calming words that this should be well enough for the "foreseeable" future it looks like at least one bank ( Deutsche Bank ) that was involved in providing one part of the guarantee had finally gotten the time to read the latest report........ Very difficult for the German elite ( banking, oversight, Bundesbank, politicians etc ) to see at first glance that the proposed number would carry the HRE only over the next 3 month..... If you want to laugh out loud i highly recommend to read the "risk report" on page 24 in the latest HRE Interim Report at June 30, 2008.... Looks like we will get the "mother of all German bailouts" before the asian markets will be open for trading......

Ich habe aufgrund der überaus hektischen letzten Börsenwoche leider keine Zeit gehabt das Thema HRE zu beackern. Ich verweise daher dringend auf den Blogger "Weissgarnix" der bereits als die erste Meldung über den Bailout über die Ticker lief die heutigen Ereignisse vorhergesagt hat. Genießt bitte in der Reihenfolge seine Berichterstattung zu dem HRE Debakel
1. HRE - Da kömmt noch (viel) mehr!
2. Lesestoff für klagefreudige HRE-Aktionäre
3. Avanti Dilettanti!

Wer zudem noch gute Science Fiktion lesen möchte dem empfehle ich anstelle Perry Rhodan den letzten HRE Zwichenbericht zum 30.06.2008... Mehr an der Wirklichkeit vorbei geht nun wirklich nicht...... Tippe mal das wir noch bevor die Asiatischen Börsen den Handel eröffnen die "Mutter aller Deutschen Bailouts" sehen werden ......

It is a irony and a farce that 2 ( HRE & the merged Depfa ) of the biggest supporters & cheerleaders of the "Pfandbrief" ( covererd bond ) with the supposed highest safety standarts are running into funding problems..... But it looks like they have choosen to get a little bit of extra yield in ramping up their repo funding a whopping 41% since the end of 2007 to € 89 billion ( see Page 27 HRE Analyst Presentation ) while their long term covered funding is flat since the end of 2006.....
Quote CFO at this presentation " We take advantage of the very favourable conditions of the repo market....."

But what else do you expect from a management that had this to say back in January Hypo Real Estate Crashing 35%...CEO "We Did A Fantastic Job"......

Zudem möchte ich noch darauf hinweisen das es einer gewissen Ironie und Tragik gleichkommt, das ausgerechnet zwei ( HRE plus übernommene Depfa ) der größten und strärksten Befürworter im Pfandbriefmarkt der ja bekanntermasen eines der sichersten Anlageinstrumente unsere Zeit ist, in Refinanzierungsprobleme gelaufen sind. Normalerweise dürften sich die Pfandbriefe gerade in dieser Zeit ungebremster Nachfrage erfreuen. Dummerweise sieht es für mich so aus als wenn das vollkommen inkompetente Management der HRE/Depfa wohl wegen eines minimalen Zinsvorteiles die Ausweitung des Geschäftes einzig und allein mit der Refinanzierung durch Repos ( 44% seit Ende 2007 auf sagenhafte 89 Mrd € ) zu stemmen versucht ( siehe Seite 27 HRE Analysten Präsentation ) während die langfristige Finanzierung durch Pfandbriefe / Covered Bonds seit Ende 2006 unverändert geblieben ist.

Zitat aus der dazugehörigen Telefonkonferenz "Wir haben die sehr vorteilhaften Bedingungen des Repomarktes ausgenutzt........"

Aber was sonst soll man auch von einem Management erwraten das im Januar dieses Zitat rausgehauen hat Hypo Real Estate Crashing 35%...CEO "We Did A Fantastic Job"......

Hypo Real Estate Rescue at Risk as Banks Withdraw Their Support Bloomberg
Hypo Real Estate Holding AG, the ailing German property lender, said a 35 billion-euro ($49 billion) government-backed bailout plan collapsed as commercial banks withdrew their support.

``The bank is in a very difficult situation,'' Hypo Real Estate spokesman Hans Obermeier said in a telephone interview. ``We hope everyone involved in the discussions is aware of this.''

German authorities brokered the Sept. 28 bailout to avoid economic damage that would have resulted from the failure of the nation's second-biggest property lender. Hypo Real Estate said in a statement late yesterday that ``alternative measures are being investigated.''

Hypo Real Estate's financing needs exceeded the bailout plan guarantee, Germany's Die Welt reported yesterday, citing unnamed people in the finance industry. It will need 20 billion euros by the end of next week and 50 billion euros by the end of the year, according to the newspaper. As much as 100 billion euros may be needed to shore up the bank's finances by the end of 2009, Die Welt said. Obermeier declined to comment.

The European Central Bank and the Bundesbank planned to contribute jointly 20 billion euros, and a group of unidentified banks another 15 billion euros. The plan called for Hypo Real Estate to use 42 billion euros in assets, mostly debt owed by government borrowers, as collateral.

Heiner Herkenhoff, a spokesman for the German BDB banking association, declined via e-mail to comment. Bundesbank spokesman Christian Burckhardt and the German Finance Ministry didn't return calls seeking comment.

Shut Out
The bank sought the lifeline after its Dublin-based Depfa Bank Plc unit, which specializes in government lending and depends on now-closed money markets for funding, failed to get short-term funding amid the credit crunch.

Failure to provide the rescue package ``may have triggered unpredictable consequences for the German financial and economic system similar to those of the collapse of U.S. financial group Lehman Brothers,'' Frankfurt-based Bundesbank and BaFin, Germany's financial regulator, said in a joint letter dated Sept. 29 and addressed to Finance Minister Peer Steinbrueck.

``If we had not acted, the bank's crisis wouldn't have just hurt the financial sector, but its network of business would have hurt the real economy, in Germany and beyond,'' German Finance Minister Peer Steinbrueck said the same day.

Hypo Real Estate, run by Chief Executive Officer Georg Funke since it was spun off from HVB Group in 2003, reported writedowns on collateralized debt obligations on Jan. 15. The company said Aug. 13 that second-quarter pretax profit plunged 95 percent because of further markdowns on debt.

Flowers Investment
A group led by J.C. Flowers & Co., the buyout firm run by Christopher Flowers, bought a 24 percent stake in Hypo Real Estate for about 1.13 billion euros in June.

Former parent HVB Group is now a unit of UniCredit SpA, Italy's biggest lender, which is holding an extraordinary board meeting today to boost its regulatory capital and settle investors' concern with its finances.

The global financial crisis that prompted Lehman Brothers Holding Inc.'s Sept. 15 bankruptcy filing is weighing on Europe. Belgian authorities are exploring ``all methods'' to keep Fortis in business even after it received an 11.2 billion-euro government bailout on Sept. 28. Belgium and France on Sept. 30 threw Dexia SA a 6.4 billion-euro lifeline.

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Anonymous Anonymous said...


So whats going on here how do they lured into what seems like a terrible maturity mismatch on liabilities and assets a lar Northern Rock?

5:09 AM  
Blogger jmf said...


"terrible maturity mismatch on liabilities"


On their latest call in August only 5% percent of all questions were on this topic....

The rest on the quality of the cre credit book, cdo´s etc.....

The CEO answered that the liquidity was very high on his priority list..... What a joke....

I really think they underestimated the risk that they will have problems in refinancing public debt.....

With all the CDS on sovereign debt now creeping higher with every bailout attempt this won´t get easier and cheaper going forward....

At least i havn´t found the world "Iceland" in their interim report"......

But with this managementb it wouldn´t surprised me if they have done something since August... :-)

5:40 AM  
Anonymous Anonymous said...

Guess the other question is whether JC Flowers spotted this?

Once you add the certificates liabilities and customer ones to the bank ones in your post the numbers are big out to 3 months and 1 year.

Which do you think will be giving problems? Or maybe all?

Could trading assets and financial investments sales plug any gap that appears?

6:11 AM  
Blogger jmf said...


"Guess the other question is whether JC Flowers spotted this?"

Definitely not... The entire focus during the first slump from € 50 zu 18 € was on the cdo and suprime exposure.....

Add the HSH Nordbank debacle to the Flowers history in Germany and the myth that he is some kind of genius is looking more and more like a really good joke....

To me it seems his famous "Shinsei" deal in Japan was more luck than anything else....

Same could be said to almost everyone labeled "smart money" 12 month ago.... :-)

6:48 AM  
Anonymous Anonymous said...

So what do you think of timing and the political/financial background, some reporting of a clash between Ackermann and Angie?

7:17 AM  
Anonymous Anonymous said...

Well, the CEO Funke is a used car sales man type - overly aggressive and short-term focused. First, he "weaseled" the HRE business out of under HVB Unicredito using pressure and blackmail tactics.

Then he boosted the place wherever he could with a "hit the wall" strategy. It all fits with his reckless personality.

I hope he pays a personal price!

7:58 AM  
Anonymous Anonymous said...

Ja? ..He he... well used cars may be a good business again, maybe in Iceland?

8:07 AM  
Anonymous Anonymous said...

@ ano7:58 - Merkel commented that those responsible for reckless trading will be hold responsible as a price for getting the government into this mess. I suppose CEO Funke will have his share of skeletons in the closet.

Re: Mismatch of maturities - see the first part in the princton debate

8:28 AM  
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