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FT: Hypo Reality

Author: James Wilson
March 20, 2009

James Wilson analyzes the case of Munich-based HRE, which he says reveals much about the behaviour of banks during the credit boom.

Excerpt: No sooner had Georg Funke clinched the biggest deal of his banking career than he was sent a letter that should have ended any jubilation.

Its author, a well-known figure in German banking, had cast a careful eye over both Hypo Real Estate, the property lender where Mr Funke was chief executive, and Depfa, an Irish provider of public sector loans, which HRE was buying for €5.7bn ($7.8bn, £5.4bn). As the first shadows lengthened over the world financial system in mid-2007, the writer of the letter had doubts about the wisdom of the deal.

"I was really surprised. I told Funke: 'Congratulations--I knew Depfa was looking for a buyer but I didn't think it would be you. . . good luck with the integration'," the writer says, recalling his sarcastic tone. "I wondered later whether it was a bit harsh."

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