HRE intends to transfer operations no longer strategically required for the group's realignment, as well as additional balance sheet items, deconsolidated to this environment.
Reportedly, HRE, in co-ordination with the German Financial Markets Stabilisation Fund, has submitted an application to the German Financial Markets Stabilisation Agency (FMSA) for the establishment of a deconsolidated environment aimed at reducing assets in a value preserving manner.
The transaction will permit Deutsche Pfandbriefbank AG, the group's core business bank, to continue focusing on its sustainable and forward-looking activities and thus make an important contribution to the supply of credit for the real estate industry and the public sector.
This will also permit loans which no longer fall within the scope of the core bank's strategic focus to be maintained, preserving value, in the interest of the bank's clients. Moreover, the transfer is designed to lower Deutsche Pfandbriefbank AG's additional capital requirements and to accelerate the process of preparing the group for an eventual re-privatisation.
The transfer may also include assets currently held by other group entities, particularly Depfa ACS Bank (Dublin), Hypo Pfandbriefbank International (Luxembourg) and Hypo Public Finance Bank (Dublin), as well as structured products and trading positions that are exposed to increased default risks, which will have been written down if necessary or will have been included in the net trading result.
CEO Axel Wieandt said: "Establishing a deconsolidated environment is a key milestone in the group's realignment process. We will thus strengthen pbb Deutsche Pfandbriefbank as the group's core bank by relieving it of non-strategic or sub-performing assets, significantly reducing the size of its balance sheet."
The transfer, which is set to cover assets worth up to EUR210bn, is scheduled to take place during the second half of 2010, once all necessary approvals have been obtained from the responsible corporate bodies and institutions.
The European Commission will also have to decide whether HRE's plan complies with European Union rules on state aid. Reportedly, the commission raised doubts about Germany's first bad bank plan, an EUR85bn vehicle announced by WestLB, the public sector Landesbank, as part of a government bail-out last year.