Hypo Real Estate Group has presented its Q2 2008 results. The highlights are:

Adjusted pre-tax profit up to €40 million compared with Q1
Core capital ratio has increased to 8.6%
CDO effects of €145 million recognized in results
High-interest and high-margin new business in Public Sector Finance
Positive pre-tax results at all operating business segments
Market conditions are still uncertain and difficult


The Hypo Real Estate Group has again operated profitably in the second quarter of 2008 despite unfavourable market conditions. Pre-tax profit, calculated without the effect of the Mandatory Convertible Bond issued for financing the DEPFA acquisition, has improved to €40 million (Q1: €6 million). All operating business segments – Commercial Real Estate Financing, Public Sector & Infrastructure Finance as well as Capital Markets & Asset Management – have reported positive pretax results. There has been a particularly positive development in net interest income in Public Sector Finance. The core capital ratio increased to 8.6% as of 30 June, compared with 8.3% at the end of March 2008.

In the second quarter of 2007, before the outbreak of the international financial crisis, the pro-forma consolidated pre-tax profit calculated including DEPFA figures amounted to €320 million.

The current pre-tax profit includes revaluations of €145 million in the CDO portfolio recognised in the income statement, with which the Hypo Real Estate Group reflects the market environment. Such valuation changes had a negative impact of €175 million upon results in the first quarter.

With regard to new business in the second quarter, the Hypo Real Estate Group again gave priority to reducing risk and assuring liquidity ahead of achieving higher market shares, particularly in infrastructure and real estate financing.

In the field of public sector finance, the company again succeeded in generating above-average margins of around 40 basis points and yields in excess of 30%.

"We have presented a respectable result in view of the difficult conditions.

This result confirms our course of continuing to focus on safety in terms of new business as well as risk and cost management," says CEO Georg Funke. "The next months will continue to be challenging for the entire financial sector. The fact that market prospects are still uncertain means that it is almost impossible to make reliable forecasts. However, one aspect has been demonstrated by recent
months: Our business model is profitable, particularly following the acquisition of DEPFA, even in this difficult market climate. Its two main pillars, namely commercial real estate and public finance, are strong and viable on the basis of strict risk management and onbalance- sheet lending. This assessment should be fundamentally confirmed by developments in the remainder of the year unless
further external shocks dash all the hopes of market participants."

Source: Hypo Real Estate