Berlin plans savings guarantee, wrangles over HRE (2nd Roundup)

Berlin - The German government indicated Sunday it would guarantee personal deposits to prevent a run on banks as a banking crisis worsened, but balked at expanding a bail-out for troubled mortgage lender Hypo Real Estate (HRE). An unlimited guarantee of personal current accounts, savings accounts and term deposits at German banks would be far more costly than the existing cover of up to 20,000 euros (28,400 dollars) per person. 'We are saying to women and men savers that their deposits are safe,' Chancellor Angela Merkel said. Finance Minister Peer Steinbrueck said, 'I want to emphasize that we'll do what it takes to ensure women and men savers in Germany need not fear losing a single euro of their deposits.' They were emerging from regular coalition talks between Merkel's Christian Democrats (CDU/CSU) and Steinbrueck's Social Democrats (SPD). Few details of Berlin's plans were available, but Finance Ministry spokesman Torsten Albig spoke of 568 billion euros (786 billion dollars), which appeared to involve savings only. On Saturday, Merkel criticized Ireland for guaranteeing savings deposits in full, saying the European Central Bank and European Commission would speak with the Irish government to resolve the matter. It remained unclear if Berlin planned any fresh move over HRE, a German mortgage lender on the verge of collapse after its Dublin- based subsidiary Depfa ran out of fresh cash. Talks were continuing late into the night, with a reopening of financial markets Monday in Asia seen as a deadline to reach a deal. Banks let their promises of loans to HRE expire Saturday, raising pressure on the government to offer more aid. The commercial banks and the government had previously agreed to a 35-billion-euro bail- out, but reports said this may prove inadequate. Steinbrueck said he was 'outraged' at the management of the HRE group because a 'further liquidity gap in billions (of euros)' had materialized. 'The German government refuses to be forced into any co- responsibility by this banking institute,' he said. Volker Kauder, chief of the Christian Democratic and Christian Social Union (CDU/CSU) caucus in Parliament, said the federal government's guarantee would remained fixed at 26.5 billion euros (38 billion dollars). 'Nothing beyond that can be expected from the federal government,' said Kauder, who represents pro-Merkel legislators. His counterpart at the head of Social Democratic legislators, Peter Struck, said he assumed the guarantee would not be increased. Neither man disclosed how Germany aims to put the bail-out back on track. Commercial banks have said they would guarantee 8.5 billion euros, with the government backstopping the rest. Earlier Sunday, Merkel had said Berlin would 'secure HRE' and 'would not allow the difficulties faced by one financial institute' to damage the entire system. She promised that those responsible for HRE's stumble would be held accountable. A spokesman for HRE, which is one of the stocks on Germany's blue- chip share index, the DAX, said the group was 'working around the clock' with regulators, investors, shareholders and the government. HRE, which mainly lends to commercial projects and to build public facilities such as airports and roads, is the biggest German casualty of the crisis that has spread from New York in the last month. The subsidiary Depfa business involves rounding up short-term money to lend long-term, typically to municipalities. Alternatives to a bail-out would include letting HRE collapse, as the United States did two weeks ago with investment bank Lehman Brothers, or nationalizing HRE, as the United States did to Fannie Mae and Freddie Mac and Britain did to Bradford & Bingley, taking over the risks. The bail-out disclosed September 29 required short-term credit of 15 billion euros and rolling long-term refinancing into the second half of 2009 totalling 35 billion euros. An unconfirmed report by the newspaper Welt am Sonntag said an inspection by Deutsche Bank, Germany's biggest bank, had revealed HRE needed far more money short term than set out in the plan. The paper said the shortfall to the end of the year was up to 50 billion euros and to the end of 2009 it was 70 billion to 100 billion euros. The bail-out plan had apportioned a loan requirement of 15 billion euros to other banks and 20 billion euros to the Bundesbank, the German central bank. The bail-out has caused political controversy in Germany, with some opposition groups questioning why the government was risking taxpayer money to save HRE. HRE's problems are a source of concern for troubled Franco-Belgian property lender Dexia, which is due to receive an injection of 6.4 billion euros (9.05 billion dollars) from the French, Belgian and Luxembourg governments. Media reports said the two banks had close business ties, and a failure of the German rescue package could hit Dexia worse than the recent collapse of Lehman Brothers.