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ECONOMY

Hypo Real Estate posts €3.1 billion Q3 loss

German property lender Hypo Real Estate (HRE) posted on Wednesday a third-quarter net loss of €3.1 billion ($3.89 billion) and said it expected more bad news by the end of the year.

The loss was much worse than expected by analysts polled by Dow Jones Newswires, who had forecast a loss of €2.2 billion.

It “is largely attributable to the complete write-off of approximately €2.5 billion of goodwill and other intangible assets recognised at Hypo Real Estate Holding that have arisen as a result of the first-time consolidation of Depfa,” a German-Irish subsidiary, an HRE statement said.

Depfa was slammed when the US investment bank Lehman Brothers declared bankruptcy in mid September.

The remaining €600 million in losses “were due to various factors, including the consequences of the collapse of Lehman Brothers, the situation in Iceland, a further impairment relating to the investment in Babcock & Brown and other losses in value relating to the CDO holdings of Hypo Real Estate,” the statement added.

CDOs, or collateralised debt obligations are often risky securities built from a portfolio of fixed-income assets, including high-risk, or subprime US mortgages on which borrowers have defaulted in large numbers.

The real estate specialist was caught in a liquidity squeeze which worsened after Lehman Brothers went bankrupt, and in late October it obtained €15 billion in state loan guarantees under a rescue plan for the banking sector.

It had already benefited from a tailor-made rescue package worked out by the government, the German central bank and private banks worth €50 billion, to which it should have access on Thursday.

“Hypo Real Estate is providing collateral of €60 billion (comprising loans and securities) to secure the liquidity facility,” it said.

Meanwhile, it has begun to restructure its activities, but the bank warned that looking ahead, “the market environment remains difficult.”

It said that “the costs of the €50-billion liquidity facility and the restructuring will also impact on results for 2009.” It will also face costs “in conjunction with the necessary restructuring and repositioning of the group.” The property lender is to present full provisional results on November 17.

HRE was swamped by debts incurred by Depfa, which it bought in October 2007, after the international financial crisis emerged with the collapse of the US market for subprime mortgages. Depfa specialises in the financing of public works projects.

On Monday, a Munich prosecutor told AFP that an investigation had been launched into problems at HRE, accused of misleading shareholders as it was hit by the international financial crisis. The head of HRE Georg Funke resigned on October 7.

MONEY

Italy expands €200 payment scheme and introduces public transport bonus

Italy's government will extend its proposed one-time €200 benefit to more people and introduce a €60 public transport payment, Italian media reported on Thursday.

Italy expands €200 payment scheme and introduces public transport bonus

Seasonal workers, domestic and cleaning staff, the self-employed, the unemployed and those on Italy’s ‘citizens’ income’ will be added to the categories of people in Italy eligible for a one-off €200 payment, ministers reportedly announced on Thursday evening.

The one-time bonus, announced earlier this week as part of a package of financial measures designed to offset the rising cost of living, was initially set to be for pensioners and workers on an income of less than €35,000 only.

However the government has now agreed to extend the payment to the additional groups following pressure from Italy’s labour, families, and regional affairs ministers and representatives of the Five Star Movement, according to news agency Ansa.

Pensioners and employees will reportedly receive the €200 benefit between June and July via a direct payment into their pension slip or pay packet.

For other groups, a special fund will be created at the Labour Ministry and the procedures for claiming and distributing payments detailed in an incoming decree, according to the Corriere della Sera news daily.

One new measure introduced at the cabinet meeting on Thursday is the introduction of a one-time €60 public transport bonus for students and workers earning below €35,000. The bonus is reportedly designed to encourage greater use of public transport and will take the form of an e-voucher that can be used when purchasing a bus, train or metro season pass.

Other provisions reportedly proposed in the energy and investment decree (decreto energia e investimenti), which is still being adjusted and amended, include extending energy bill discounts, cutting petrol excise duty and rolling on the deadline to claim Italy’s popular ‘superbonus 110’.

The €14 billion aid package, intended to lessen the economic impact of the war in Ukraine, will “fight the higher cost of living” and is “a temporary situation”, Prime Minister Mario Draghi has said.

The Local will report further details of the payment scheme once they become available following final approval of the decree.

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