Page last updated at 15:13 GMT, Monday, 29 September 2008 16:13 UK

Hypo shares crash after loan deal

Frankfurt skyline
Hypo's loan means financing is secured for the 'foreseeable future'

Shares in German lender Hypo Real Estate plunged after it struck a loan deal with a consortium of German banks.

Its share value fell three-quarters to 3.39 euros, and in late afternoon trading was down 73.5%, at 3.57 euros.

Neither the names of the loan banks nor the deal's value have been revealed but the deal may be worth up to 35bn euros (27.8bn,$51.21bn) say media reports.

Hypo has been buffeted by the financial markets crisis as it borrows heavily from the interbank market.

It is thought the deal has ensured financing for the Hypo until the end of next year.

"Hypo Real Estate Group will not need to go back to the unsecured money market for its refunding in the foreseeable future," said chief executive Georg Funke.


The bank had been in emergency talks with the various German banks regarding short-term and mid-term credit arrangements.

Analysts proved cautious about the news with several pointing out that they expected further bad news from the markets in the coming months.

"This move will have significant impact on Hypo Real's future profits. We are downgrading from 'buy' to 'hold' as an initial step," said Christoph Bossman, an analyst at WestLB.

Hypo is now saved, but other banks can face similar risks - if markets don't normalise quickly there will be more casualties
Dirk Becker, Landsbanki Kepler

Meanwhile, Philipp Haessler of Equinet, said the deal was "good news" but highlighted Hypo's "vulnerability" especially as it had "always stressed its comfortable liquidity position".

The company also announced that it would not be paying its shareholders a dividend this year.

Money troubles

The squeeze in the financial markets has hit Hypo hard as banks have become increasingly reluctant to lend to each other.

The financial firm relies heavily on borrowing on the interbank market and on loans from Germany's central bank to refinance some 50bn euros every year.

And in contrast to its rivals such as Commerzbank, Hypo cannot rely on customer deposits to weather the storm.

To add to its pressures, several of its short-term unsecured refinancing loans - often lent to governments to bridge gaps in their budgets - expire at the end of the quarter.

And Landsbanki Kepler analyst Dirk Becker warned: "Hypo is now saved, but other banks can face similar risks. If markets don't normalise quickly there will be more casualties."

Hypo has a market value of a little under $4bn.

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