German bank bailout fund SoFFin returns to profit

For the first time since its establishment in 2008 as a rescue fund for Germany’s banks dragged down by the collapse of the subprime debt market, the bailout fund SoFFin booked a profit in 2012, after writing back €1.39bn on loss provisions for assets once held by Munich-based lender Hypo Real Estate.

After losses of €13.1bn in 2011, SoFFin managed to post net profits of €580m last year, as the write-backs helped offset €740 of valuation losses on stakes it hold in beleaguered Commerzbank and the successor banks of WestLB and Hypo Real Estate.

The German government established SoFFin in October 2008 as part of its rescue of several lenders during the financial crisis, bailing out Hypo Real Estate, WestLB, Commerzbank and IKB after the collapse of the subprime debt market. The subsequent inter-bank lending freeze led to heavy portfolio losses.

Establishing SoFFin allowed lenders to transfer some of these loss-making assets into “bad banks”, a move which helped banks avert collapse by transferring the risk onto the taxpayer. The idea was to stabilise the banking sector and allow the value of certain assets to recover. At the height of the crisis, SoFFin had to provide €168bn of liquidity guarantees and €29.4bn worth of actual capital to seven troubled German lenders.