Hypo Real Estate Holding AG: HRE is publishing interim report as of 30 September 2009

Hypo Real Estate Holding AG / Interim Report

11.11.2009 

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HRE is publishing interim report as of 30 September 2009
* Pre-tax loss in the first nine months of 2009: EUR -1.78 billion  
* Net income/loss: EUR -1.71 billion 
* Pre-tax profit/loss in the third quarter: EUR -709 million 
* Result depressed by downturn on the real estate markets

Munich, 11 November 2009 - HRE has reported pre-tax profit / loss of around
EUR -1.78 billion for the first nine months of this year (9M/2008: around
EUR -2.90 billion); net income / loss amounts to around EUR -1.71 billion
(9M/2008: EUR -2.89 billion). For the third quarter of 2009, HRE has
reported consolidated pre-tax profit/loss of EUR -709 million (9M/2008:
around EUR -3.11 billion). Net income / loss was EUR -574 million (9M/2008;
around EUR -3.05 billion). The operating revenues totalled EUR 244 million
compared with EUR -345 million in the corresponding prior year quarter.

The figures for the first nine months of this year are only comparable to a
limited extent with the prior year figures, which were very negative, due
to different factors. Last year, results were affected primarily by
impairments recognised in relation to the goodwill, intangible assets of
DEPFA BANK plc and structured products. This year, results have been
affected mainly by impairments recognised in relation to receivables. These
impairments are connected with the financial market crisis and the economic
downturn, which in particular is also affecting the commercial real estate
market. In addition, this year, net commission income has been affected by
the expenses of the liquidity support which has been received, and general
administrative expenses have been affected by the expenses of the strategic
refocusing.

However, the third quarter also experienced progress with the restructuring
and strategic refocusing of the Group. The strategic core bank, namely pbb
Deutsche Pfandbriefbank, is now operating on the market with a new brand
and a new corporate image, originating new business and being active on the
refinancing markets. Progress is also being made with streamlining the
balance sheet of HRE without placing a strain on capital. Total assets have
fallen by 11% to EUR 373.8 billion.

The CEO of Hypo Real Estate Holding AG and Deutsche Pfandbriefbank AG, Axel
Wieandt, said: 'The result of the first nine months of this year is not
satisfactory; however, it is due to the difficult conditions on the market
and the special situation of the Group. We still have a long way to go
before we will meet our objective - but good progress is being made with
the process of restructuring. Conditions on the market will continue to be
difficult.'

Selective new business  

pbb Deutsche Pfandbriefbank continues to be active on the market. In the
first nine months of the year, new real estate financing business amounted
to EUR 2.7 billion. New business of EUR 1.7 billion was written in the
third quarter alone. In public sector finance, new business in the first
nine months amounted to EUR 0.2 billion.

Capital ratios improved by support provided by the SoFFin 

As reported last week, the steering committee of the Financial Market
Stabilisation Fund SoFFin has decided to grant further support to HRE. The
Group will initially receive an additional EUR 3.0 billion as a further
tranche. In its statement, the SoFFin has again confirmed that it intends
to adequately recapitalise the Group and to make the necessary liquidity
available.

The current recapitalisation will improve the regulatory capital ratios of
HRE Holding and the group companies. On the basis of the figures as of
30 September 2009 and thus before the further capital contribution
described above, the core capital ratio was 6.1 percent for the Group, 2.6
percent for Deutsche Pfandbriefbank AG and 6.6 percent for DEPFA BANK plc.
If the recapitalisation as part of the further tranche of EUR 3 billion had
taken place in the third quarter, the ratios would have been as follows:
HRE Group 9.7 percent, Deutsche Pfandbriefbank AG 7.3 percent and DEPFA
BANK plc 7.1 percent. The Group is accordingly now fully in line again with
the minimum capital ratios specified by law. It has however to be borne in
mind that the ratios will deteriorate in view of the probable net loss for
the year as of 31 December 2009.

Note for editors:

We have enclosed explanations to the consolidated income statements for the
first nine months, the development in assets and in the financial position
as well as the regulatory ratios.

Media contacts:

Walter Allwicher, +49 (0)89 203007 787, walter.allwicher@hyporealestate.com
Oliver Gruß, +49 (0)89 203007 781, oliver.gruss@hyporealestate.com


Appendix 1: Group development 9M/2009

The income statement for the first nine months of 2009 is detailed in the
following:

* Operating revenues of EUR 512 million were higher than the corresponding
figure for the prior year period (EUR 75 million). This was due to the
improvements in net interest income, net trading income and net income from
financial investments, which are mainly attributable to positive market
movements.
o Net interest income increased to around EUR 1.05 billion, compared with
EUR 957 million in the first nine months of 2008. The increase is
attributable to income generated with money market operations as well as
drawn US customer liquidity facilities. The income generated with money
market operations was attributable to the lower level of market interest
rates which, at the beginning of 2009, enabled HRE to take advantage of
lower refinancing costs in conjunction with constant revenues generated by
lending operations. The drawn US customer liquidity facilities have boosted
net interest income as a result of their high interest rates. A further
positive factor has been the net interest income attributable to the
securities which in 2008 were reclassified as loans and receivables,
whereas they had previously been classified as held-for-trading. The
one-off revenues attributable to sales of receivables, premature repayment
penalties as well as repurchasing and redemptions of financial liabilities
declined compared with the prior year (9M/2009: EUR 37 million, 9M/2008:
EUR 99 million).
o Net commission income amounted to EUR -304 million compared with EUR 104
million in the corresponding prior year period. The decline is primarily
attributable to expenses of EUR -382 million for the guarantees in
connection with the liquidity support provided by SoFFin and the German
Federal Government.  The much lower level of new business and lower income
from Capital Markets & Asset Management (an operating segment which is
being discontinued by HRE) also had an impact in this respect. HRE
generated slightly higher income with new customer derivative business
(current year: EUR 20 million, prior year: EUR 13 million).
o Net trading income in 2009 so far amounts to EUR -2 million, and is
considerably higher than the corresponding prior year figure  (9M/2008: EUR
-435 million), because the effect of the valuation of synthetic
collateralised debt obligations (CDOs) recognised in the income statement
had a considerably lower impact on net trading income (9M/2009: EUR -66
million, 9M/2008: EUR -218 million). In addition, the lower probability of
default in connection with the restructuring of a US monoline insurer also
had a positive impact in the third quarter of 2009. This partially
compensated for the impairments recognised in the income statement in
previous quarters. In addition, a book profit has been generated with the
sale of claims against the US investment bank Lehman Brothers Inc., which
has filed for creditor protection. These claims had been almost completely
written off and revalued in 2008.
o The net income from financial investments amounted to EUR -43 million in
the first nine months of the year compared with EUR -528 million in the
corresponding prior year period. This is mainly attributable to impairments
recognised in relation to cash CDOs of EUR -22 million (9M/2008: EUR -409
million). The impairments recognised in relation to mortgage-backed
securities amounted to EUR -29 million (9M/2008: EUR -4 million).
Portfolio-based allowances of EUR -9 million have also been created. On the
other hand, profits from the sale of financial investments of EUR 10
million were realised (9M/2008: EUR 49 million).
o The net income from hedge relationships amounted to EUR -137 million, and
was thus lower than the corresponding prior year figure of EUR -34 million.
Two factors are reflected in the net income from hedge relationships: Hedge
inefficiencies of EUR -131 million (9M/2008: EUR 2 million) within the
range of 80% to 125% permitted under IAS 39, as well as the valuation
result of EUR -6 million (2008: EUR -36 million) resulting from designated
at Fair Value through Profit or Loss (dFVTPL) assets and related
derivatives. The hedge inefficiencies resulted mainly from the volatility
of short-term interest rates. This consequently had a positive impact on
net interest income in the period under review, and had a negative impact
on the net income from hedge relationships. The net income from hedge
relationships is a reversal of the corresponding figure for the prior year
which was very positive.

The fair values of the dFVTPL assets hedged against interest risks have
fallen as a result of credit spread narrowing in the first quarter of 2009.
This narrowing recovered to a large extent in the second and third quarters
of 2009.
o The balance of other operating income/expenses amounted to 
EUR -51 million (9M 2008: EUR 11 million), and was mainly attributable to
currency translation effects (mainly US$) of EUR -58 million (9M 2008: EUR
12 million).

* Additions to provisions for losses on loans and advances increased to
around EUR 1.89 billion mainly as a result of the deterioration in the
commercial real estate markets (9M/2008: EUR 247 million).
o Of the individual loan loss provisions which were recognised, real estate
loans accounted for EUR 1.43 billion and infrastructure and public sector
financings accounted for EUR 117 million. The significant increase in
provisions for losses on loans and advances for real estate financings was
attributable to the further deterioration in regional economic conditions
on those real estate markets which have been identified as critical for
quite some time, namely North America, Southern Europe, Great Britain, and
partially Germany. The increasing vacancy rates and illiquid markets have
resulted in declines in the value of real estate and thus, indirectly, in
increasing levels of loan defaults. The world-wide recession is also having
an impact on the utilisation of infrastructure products such as motorways,
airports and means of transport.
o The portfolio-based allowances increased by EUR 292 million (9M/2008:
Additions of EUR 115 million). The expected losses of the holdings have
increased, due to the deterioration in the credit standing of some debtors
and the related increase in probability of default.

* General administrative expenses have declined to EUR 393 million
(9M/2008:  EUR 424 million). This is attributable to several factors:
Personnel expenses have declined as a result of a reduced workforce
(30 September 2009: 1,480 employees, 31 December 2008: 1,786 employees).
The accrued liabilities for variable compensation were also lower.
The accrued liabilities for variable compensation which were created in the
first three quarters of 2008 were reversed in the fourth quarter of 2008.
The other general administrative expenses increased mainly as a result of
higher fees for IT and advisors which were not permitted to be included in
the restructuring provision created in 2008. The cost-income ratio, i.e.
the ratio between general administrative expenses and operating revenues,
improved slightly to 76.8% (2008: > 100.0 %).

* The balance of other income / expenses amounted to EUR -11 million (9M
2008: EUR 180 million).

* Pre-tax profit / loss was negative in the first three quarters of 2009
with around EUR -1.78 billion (9M/2008: around EUR -2.90 billion).

* Current tax expenses of EUR 29 million were opposed by deferred tax
income of EUR 102 million, thus resulting in a total tax income of EUR 73
million for the first nine months of 2009 (9M 2008: tax income of EUR 6
million). The actual tax expense was incurred mainly in countries in which
HRE generated positive pre-tax results.

* Net income / loss amounted to around EUR -1.71 billion in the first nine
months of 2009 (9M/2008: EUR -2.89 billion).

Appendix 2: Development in net assets and financial position as of 30
September 2009

* Total assets of HRE declined continuously in the year under review, and
amounted to EUR 373.8 billion as of 30 September 2009; this represents a
decline of 11% compared with last year (31 December 2008: EUR 419.7
billion). This decline is attributable to several factors. Portfolios
declined because new business and the drawings of old commitments were
lower than the repayments. In addition, on-balance-sheet holdings declined
as a result of exchange rate factors and the impact of the lower level of
interest rates on the market values of the derivatives. These factors are
reflected primarily in the items loans and advances, financial assets and
trading assets. Total assets also declined as a result of the impairments
recognised in relation to receivables and securities.

* The total volume of lending, which comprises loans and advances to
customers (excl. investments), loans and advances to other banks (excl.
investments) as well as the contingent liabilities, amounted to EUR 239.7
billion as of 30 September 2009 compared with EUR 267.3 billion at the end
of 2008 (a decline of 10%).

* Equity (excl. the revaluation reserve) amounted to EUR 5.0 billion as of
30 September 2009, compared with around EUR 2.6 billion as of 31 December
2008. Including the revaluation reserve, equity amounted to around EUR 2.2
billion as of 30 September 2009 (31 December 2008: EUR -1.5 billion).

* The revaluation reserve amounted to EUR -2.7 billion (31 December 2008:
EUR -4.1 billion). The AfS reserve improved to EUR -2.1 billion as of 30
September 2009 as a result of market factors, compared with EUR -3.1
billion as of 31 December 2008. This positive development is attributable
to improvements in credit spreads. The AfS reserve also increased as a
result of the impairments and amortisation of securities which were
reclassified in 2008 in accordance with the IAS 39 amendment
'Reclassification of Financial Assets' which was adopted in October 2008 by
the IASB and endorsed by the EU. HRE had reclassified available-for-sale
assets with a carrying amount of EUR 76.1 billion as loans and receivables
retrospectively as of 1 July 2008. Without this reclassification, the AfS
reserve after taxes in the first nine months of 2009 would have been EUR
3.5 billion higher.

Including the effects from the year 2008, the AfS reserve after taxes would
have been lower by a total of EUR -3.6 billion without this
reclassification.

* The cash flow hedge reserve amounted to EUR -0.6 billion, compared with
EUR -1.0 billion at the end of last year.  The change was mainly
attributable to maturities of derivatives and the lower level of interest
rates in the course of the year.

The subscribed capital has increased by EUR 3.02 billion in the first nine
months of 2009 following the recapitalisation of HRE by the SoFFin. In the
first quarter of 2009, the SoFFin utilised the authorised capital to take
up 20 million shares of HRE Holding for the minimum price of EUR 3.00 per
share permitted by law, excluding shareholders' subscription rights. In
June 2009, the SoFFin took up around 986.5 million shares as part of a
capital increase which was adopted by the Extraordinary General Meeting of
the Company on 2 June 2009.

Since the first quarter of 2009, certain hybrid issues of DEPFA BANK plc
have had to be recognised as equity instruments in accordance with IAS
32.16. The classification of financial instruments as capital instruments
or debt instruments does not depend on the Company's regulations. Instead,
it depends on whether the Company has a contractual obligation to make
payments from an issued financial instrument. DEPFA BANK plc has issued
subordinate debt in the form of undated bonds via its issuance vehicles
DEPFA Funding II LP, DEPFA Funding III LP and DEPFA Funding IV LP.  These
hybrid capital instruments only have to make interest payments if creditors
of equal ranking receive an interest payment. After the last equal-ranking
liability was repaid in the first quarter of 2009, the Company no longer
has a contractual obligation to make interest payments after this time.
Accordingly, it was necessary for the carrying amount of these hybrid
capital instruments (EUR 1.04 billion) to be reclassified under equity
(instead of under subordinated liabilities).

Appendix 3: Regulatory indicators

The regulatory own funds according to the German Solvency Regulation
(SolvV) amounted to around EUR 6.71 billion as of 30 September 2009.
On 31 December 2008, pro-forma own funds amounted around to EUR 5.0 billion
as per the approved annual financial statements 2008 and after the result
distribution 2008. The core capital amounted to EUR 5.10 billion as of 30
September 2009. On 31 December 2008, the core capital (pro-forma) was
around EUR 2.93 billion as per the approved financial statements 2008 and
after the result distribution 2008.

The capital ratios as of 30 September 2009 and 31 December 2008 are
accordingly as follows:

* The core capital ratio (incl. risk-weighted credit risk positions as well
as the capital requirements for market risk positions and operational risks
scaled with the factor 12.5) amounted to 6.1% as of 30 September 2009. On a
pro-forma basis and as per the approved financial statements 2008 and after
result distribution 2008, the core capital ratio amounted to 3.4% on 31
December 2008.

* The own funds ratio (incl. risk-weighted credit risk positions as well as
the capital requirements for market risk positions and operational risks
scaled with the factor 12.5) amounted to 8.0% as of 30 September 2009. On a
pro-forma basis and as per the approved financial statements 2008 and after
result distribution 2008, the comparable figure was 5.7% on 31 December
2008.


Contact:
Kontakt: Herr Walter Allwicher +49 (0)89 2880 28 787
         Herr Oliver Gruß+49 (0)89 2880 28781




11.11.2009  Financial News distributed by DGAP. Media archive at
www.dgap-medientreff.de and www.dgap.de

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Language:     English
Company:      Hypo Real Estate Holding AG
              Freisinger Strasse 5
              85716 Unterschleissheim
              Deutschland
Phone:        +49 (0)89 2880 28 291
Fax:          +49 (0)89 2880 22 28 201
E-mail:       irfo@hyporealestate.com
Internet:     www.hyporealestate.com
ISIN:         DE0008027707, DE000A0XFS34, DE000A0Z1JJ5
WKN:          802770, A0XFS3, A0Z 1JJ
 
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