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Hypo Real Staff Payments ‘Not Inappropriate,’ Government Says

Extra staff payments at Hypo Real Estate Holding AG, the lender whose 2009 implosion and state bailout represented Germany’s biggest bank failure since World War II, were “not inappropriate,” the government said.

Hypo Real Estate’s transfer of almost 200 billion euros ($262 billion) of toxic assets into a so-called bad bank is one of “the most complex transactions in German financial history,” Finance Ministry spokesman Michael Offer told reporters in Berlin today. “For this operation, the bank needs experienced and good employees.”

Hypo Real Estate paid out a total of 25 million euros in one-time extra payments for last year, spokesman Walter Allwicher said in an e-mail on Sept. 18. Executives were excluded from the payments, which were in lieu of bonuses, and employees’ total annual compensation didn’t exceed 500,000 euros, Allwicher said. Der Spiegel, which first reported the payments earlier the same day, said they were executive bonuses.

The payments are a “scandal,” Reiner Holznagel, vice chairman of the taxpayers’ lobby, said in today’s Handelsblatt newspaper. He blamed the government for having failed to execute its supervisory duties.

Chancellor Angela Merkel’s government took over Hypo Real Estate in 2009 after the lender’s Dublin-based Depfa Bank Plc unit couldn’t raise financing when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets. Hypo Real was one of seven banks to fail stress tests on 91 of Europe’s biggest lenders in July.

‘Hard to Swallow’

The government, via its Soffin bank-rescue fund, granted Hypo another 40 billion euros of state guarantees this month to safeguard restructuring efforts. The infusion swelled government guarantees to the Munich-based lender to 142 billion euros.

“This is surely hard to swallow just a week after the bank asked for another 40 billion euros in guarantees,” Bjoern Saenger, a member of parliament’s Finance Committee for Merkel’s Free Democratic Party coalition partner, said today in an interview. “The government can’t be surprised about that and must accept the public’s opprobrium.”

Hypo Real Estate won approval on July 8 to establish the bad bank to house as much as 210 billion euros of “non-strategic assets.” The amount represents more than half of Hypo Real Estate’s total assets at the end of 2009.

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