The European Commission has approved under EU state aid rules restructuring aid consisting of capital injections of €10 billion, an asset relief measure with an aid element of about €20 billion, as well as liquidity guarantees amounting to €145 billion for the banking group, Hypo Real Estate (HRE).

The Commission concluded that the restructuring plan of HRE and its core bank, pbb Deutsche Pfandbriefbank (pbb), is liable to restore pbb's long-term viability while ensuring that the bank and its former owners adequately contribute to the restructuring costs, and that the distortions of competition created by the aid are mitigated. All business activities of the HRE group will be phased out, except for the activities of pbb. At the end of 2011, pbb's adjusted balance sheet size will be around 85 per cent smaller than HRE group's balance sheet size was at the end of 2008. This will adequately address the distortions of competition created by the massive state support received by the German banking group during the financial crisis.

The cornerstones of the restructuring plan are:

• Only the core bank pbb will be active in the markets; with two strategic business lines: real estate finance and public investment finance, both targeting assets eligible for German covered bonds, either in the form of mortgage or of public sector bonds. All other activities, in particular budget finance, infrastructure finance, capital markets and asset management activities, will be phased out.

• The other main subsidiary of HRE Holding, DEPFA Bank plc, is to be run down and will not generate any new business.

• Impaired assets transferred to HRE's winding-up institution, FMS-WM (FMS Wertmanagement AöR), will be wound down.

• pbb's future activities are of a considerably smaller scale than HRE's activities before the crisis, in terms of balance sheet size, volume of new business, workforce, branch network and geographical scope.

• pbb will carry out its activities based on a stable funding approach and improved internal control systems.

• The Commission found the restructuring aid to be in line with its guidelines on restructuring aid for banks and its guidance for the treatment of impaired assets; subject to the implementation of the restructuring plan and the fulfilment of the commitments provided by Germany regarding HRE's restructuring.

Press release