“the main liquidity problems lay with Depfa in Dublin..”

It’s not clear how much of a direct cause and effect there was between the announcement of the Republic of Ireland’s government tax-payer guarantee for Irish banks and the collapse of the loan arrangement for Munich-based Hypo Real Estate, but the sequence of events is worth noting given the role of HRE’s Dublin-based subsidiary Depfa. And there’s a facinating report in the Irish Times which hints at the possible connection.

The Munich-based HRE says the problems stem from its Dublin-based subsidiary Depfa which has experienced liquidity problems as a result of global financial insecurity, making it impossible for the bank to refinance its debts. A HRE spokesman yesterday said the Irish Government had indicated it would “consider” helping with the bank’s liquidity problems. “When it became clear that the banks were withdrawing their credit line for Hypo, we telephoned everywhere to see where we could get help,” said HRE spokesman Hans Obermeier. “There were signals given from Ireland that they would consider it, that they might be prepared to help.” However, the Government said it would not be involved in any substantive way.

“We are not providing assistance to Depfa,” said a spokesman for the Department of Finance. Any such assistance would have been a bizarre twist in the financial crisis. At the weekend, German chancellor Angela Merkel criticised Ireland’s decision to issue a State guarantee for all Irish banks. Berlin says it favours tailored rescue solutions for individual banks with liquidity problems.

Despite yesterday’s announcement of a state guarantee for private deposits, she indicated there would be no state guarantees for commercial investors. “We will not allow that the difficulties of one financial institute to bring the whole system into difficulty,” said Dr Merkel. “The federal government will make sure of that. We owe that to the taxpayers.”

Some Dublin observers complain that the blame for HRE’s difficulties is being shifted solely on to the shoulders of Dublin-based Depfa. HRE sources say “it is a fact that the main liquidity problems lay with Depfa in Dublin”. Bought by HRE last year for €5.7 billion, Depfa finances large state infrastructure projects like hospitals and bridges. The world financial crisis appears to have had a knock-on effect on Depfa’s results, with operating profits down from €1.06 billion to €862 million last year.