New Greek bailout to hit nationalized German "bad bank"

Munich (dpa) - Germany‘s taxpayers are to take a new hit from the massive write-down in "privately held" Greek sovereign debt agreed early Tuesday, because they own a bank that holds Greek bonds.

Banking industry sources said in Munich Tuesday that agreement alone would add another 6 billion to 8 billion euros to Germany‘s costs, over and above Berlin‘s cash injections to the European Financial Stability Facility and other government-level programmes.

The distressed bonds had been bought by Hypo Real Estate (HRE), a banking group bailed out in 2008 and nationalized the following year. In 2010, HRE spun off its toxic debt to a bad-bank unit, FMS Wertmanagement.

An FMS spokesman could not yet say Tuesday what the precise cost of the euro finance ministers‘ decision in Brussels to FMS would be.

In January, Christopher Pleister, head of the Financial Market Stabilization Authority FMSA, a German federal agency, testified to the parliamentary budget committee that a write-down of 50 per cent would cost FMS 6 billion euros in losses.

The nominal writedown has turned out to be even more, 53.5 per cent.

Under German law, a federal bailout agency, Soffin, must refund the losses to FMS, which is otherwise worthless.

As of June 30, its accounts show FMS held Greek government bonds with a face value of 7.2 billion euros.

The overall effective loss to the bad bank is complex to calculate, since non-repaid loans to Greek borrowers and losses on derivatives linked to bonds also contribute to the total.

Converting the Greek bonds into new bonds with a lower value also technically counts as part of the losses.

In its short existence, FMS has so far booked 3.7 billion euros in losses, practically exhausting its start-up capital.

Bad banks take over toxic debt and attempt to exploit unseen value in it to minimize the overall loss. HRE shifted 175 billion euros in distressed loans to FSM so that what was left of the group could start with a clean slate. dpa sbr jbp hl Author: Sebastian Raabe