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ECONOMY

Hypo Real Estate expects heavy charges

German property lender Hypo Real Estate expects to suffer heavy charges in 2009 after flirting with bankruptcy this year, the bank said in a statement on Monday.

Published: 17 November 2008 14:33 CET
Hypo Real Estate expects heavy charges
A Hypo Real Estate building reflected in a puddle. Photo: DPA

Hypo Real Estate (HRE), which suffered a net loss of €3.052 billion ($3.8 billion) in the third quarter, expects “an extremely negative consolidated result for the whole of 2008,” a statement quoted financial director Markus Fell as saying. The statement confirmed third-quarter results initially announced on November 12. It preceded a separate statement saying that eight members of the bank’s supervisory board had resigned.

Fell said that “the necessary restructuring of the Hypo Real Estate Group and the costs of the agreed or planned liquidity lines and capital assistance will continue to pose a major strain on consolidated result in 2009.”

HRE was saved from bankruptcy by a public-private rescue package worth €50 billion and suffered most of its losses through its Depfa subsidiary, which had extensive dealings with bankrupt US investment bank Lehman Brothers. It has also obtained a €15 billion state loan guarantee under a government rescue plan for the banking sector.

In the third quarter, HRE was forced to devalue Depfa assets by €2.48 billion “The tremendous force which hit the Hypo Real Estate Group as a result of the unparalleled financial crisis can clearly be seen in the figures for the period ending 30 September,” Fell said.

HRE directors are working under the supervision of the German government and central bank to reposition the group, aiming to establish a group which is “more strongly integrated and less complex,” the statement said. “For the time being, the Hypo Real Estate Group will not be able to adequately refinance the company via the money and capital markets alone, even if this is of course our objective in the medium term,” chief executive Axel Wieandt was quoted as saying.

In a separate statement, the bank announced that eight members of its supervisory board, including its president, had resigned. Former German central bank governor Hans Tietmeyer also submitted a resignation. The former head of HRE, Georg Funke, had already been forced out owing to the bank’s desperate situation.

However, three board members who represent US investment fund JC Flowers, which owns around 24 percent of HRE, are to stay on.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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