Expert commission says wind down Hypo Real -sources
Wed Feb 9, 2011 10:20am EST
* Experts find HRE not indispensable for Germany - sources
* Also recommend winding down WestLB - sources
* Says state could up Commerzbank stake before exit -sources
FRANKFURT, Feb 9 (Reuters) - Ailing German lender Hypo Real Estate (HRE) [NUEG.UL] should be wound down, a German expert commission has recommended, two sources familiar with the matter told Reuters on Wednesday.
"The experts can see only slim chances that a privatisation of HRE would become a success," said one of the people with knowledge of a report drafted on behalf of the German government by the expert commission.
Due to overcapacity in the markets where nationalised mortgage lender and state financier HRE is active, the experts concluded that a sale would not yield higher proceeds than a liquidation, the source added.
HRE required more than 100 billion euros ($136.5 billion) in German government assistance in the financial crisis, bailed out because it was seen as crucial to the stability of the country's covered bond market.
The European Commission and Germany are likely nearing a solution on disputed state aid for HRE, the European Union's competition chief Joaquin Almunia said last week. [ID:nWEA5229]
The expert commission judged that both HRE and ailing public-sector bank WestLB [WDLG.UL] were "not indispensable" for the German economy and could be wound down, the sources said.
HRE said in a statement that given restructuring successes, a reprivatisation was the option that would maximise value, adding: "We expect that (core bank) pbb will be profitable in 2011."
According to sources, WestLB is nearing a deal that will keep key parts under public-sector control, but leave other units to be scooped up by investors. [ID:nLDE711296]
Almunia has set a Feb. 15 deadline to resolve the issue.
COMMERZBANK
The expert commission also commented on possible strategies for the government to exit Commerzbank (
CBKG.DE), Germany's second-biggest lender.
The state owns 25 percent of Commerzbank and has granted it a 16.2 billion euro capital injection in the form of a non-voting so-called "silent participation".
One option is that the government could swap the silent participation for equity and thereby hike its stake to roughly 80 percent and then sell it to a foreign competitor, the sources said, quoting from the draft report.
This would allow the government to secure a higher price, as buyers usually pay premiums for majority stakes.
However, a source close to the government said it was unlikely that
Germany would press ahead and sell Commerzbank to a foreign investor.
Commerzbank and WestLB declined to comment on the report, which had earlier surfaced in German media.
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