The encyclopedia · Trading & Investing · Financial decision · 2008–2009
Hypo Real Estate's Depfa bet needed a €102B state rescue
Hypo Real Estate bought Depfa and its short-term funding model. When the 2008 crisis froze lending, Germany had to backstop €102B.
Hypo Real Estate (HRE) · 2008-09-29
What happened
Hypo Real Estate (HRE) was Germany's second-largest commercial property lender, formed in 2003 from HypoVereinsbank's real estate business. In 2007, it acquired Depfa Bank, a public finance company that funded long-term assets with short-term wholesale borrowing. The acquisition was a bet that Depfa's funding model would survive any market disruption.
When the 2008 financial crisis froze interbank lending, Depfa's short-term funding model collapsed immediately. HRE could not roll over its debt. The first rescue package of €35 billion on 29 September 2008 fell apart when the banking consortium withdrew. The German government escalated to a €50 billion package, then to €52 billion, and ultimately to €102 billion in total state support by April 2009.
SoFFin, the German bailout fund, took over 90% of HRE by April 2009 and completed full nationalization in October 2009, squeezing out remaining shareholders — including J.C. Flowers, which had bought at €22.50 per share and was forced out at €1.30. CEO Georg Funke resigned. The German parliament formed a committee to investigate the largest bailout in German history.
Why it happened
- HRE acquired Depfa without understanding the risk of its funding model. Short-term wholesale borrowing to finance long-term assets is a run waiting to happen — and the 2008 crisis was the trigger.
- The first €35B rescue fell apart because the banking consortium withdrew. The state had to step in alone, turning a private acquisition failure into a €102B public commitment.
- The acquisition was a single bet that destroyed the entire company. The acquirer's business was fine; the acquisition was not. One deal, one failure, one €102B bill.
The lesson
A funding model that works until it does not is not a model — it is a hope. Buying a company that depends on a hope is a decision that costs the taxpayer, not the buyer.
Sources
- Wikipedia — Hypo Real Estate
- BBC News — German bank Hypo Real Estate needs €35bn rescue (short-term funding model collapsed, first of €102B in state support, nationalised 2009)
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