Rescue rights fears hit German bank

Shares in HypoVereinsBank, Germany's second-largest bank, sank 15 per cent to their lowest point in 20 years yesterday amid speculation it was planning a huge rights issue to shore up its strained balance sheet.

Dieter Rampl, the chief executive of HVB, told staff he was examining all ways of restoring the bank's depleted finances. Mr Rampl is thought to be very unenthusiastic about raising funds by issuing bonds that must be converted into shares at maturity, in effect a deferred rights issue.

German banking officials did their best to soothe tattered nerves, insisting HVB had sufficient funds to operate without problems. Edgar Meister, a board member at the Bundesbank, said there was no need for HVB to raise capital, adding that the banking group's liquidity and solvency were assured. "From the Bundesbank's point of view, HVB has taken appropriate steps to strengthen its business a while ago and is on the right track," he said.

But confidence in Germany's major banks is at a low, and there is increasing speculation that a state bail-out may be needed. HVB and Commerzbank, Germany's third-biggest bank, have both unveiled heavy net losses for 2002 recently.

Banking sources said HVB would probably not raise fresh capital and would rather make slower progress towards its capital targets if proceeds from its planned asset disposals were lower than expected.