Claimants sought for class action against bank linked to BC P3s

Between September 2007 and December 2008, the price of shares in HRE Holding AG dropped from more than euro 35 a share to less than euro 3 a share. The reason for the share price drop is most likely that the shares were significantly overvalued based on false capital market information provided by the company's board of directors up until September 29, 2008. Numerous investors in Germany and abroad suffered substantial financial losses as a result of the drop of the share price.

The HRE crisis was triggered by taking over Deutsche Pfandbriefbank AG (DEPFA) on October 2, 2007. DEPFA, for the acquisition of which HRE incurred costs of approximately euro 5 billion, is a bank headquartered in Dublin (Ireland) that specializes in financing governmental projects. DEPFA had encountered financial difficulties because it had secured long-term loans, which it had granted, by taking out short and medium-term bonds. As a result of the international crisis in the financial markets, however, these bonds became so expensive that interest payable by DEPFA significantly exceeded the amount of interest earned since mid 2007, which in consequence caused the bank to experience financial distress.

At the time of the DEPFA takeover in October 2007, the HRE board of directors had not made these circumstances public. As late as on November 7, 2007, Georg Funke, CEO, still emphasized that HRE had not been affected by the financial crisis to any notable extent and that it would presumably emerge even stronger from the crisis, although he must have been aware at the time that DEPFA as a 100% subsidiary had already been strongly affected by the financial crisis. In consequence, HRE shares continued to remain at an average price of euro 35 between November 2007 and January 2008, even though, in view of the imminent losses, a significant downward adjustment to the price would have been in order.

On January 15, 2008, HRE finally acknowledged that write-offs of euro 390 million were necessary to the company's own portfolio of structured securities. Nevertheless, in its Interim Report dated June 30, 2008, HRE still claimed that even in a worst-case scenario, its unlimited solvency would be assured. Not until September 29, 2008 did HRE finally make public that DEPFA Bank was in an imminent liquidity crisis that threatened its very existence and that, as a result, the entire HRE Group was on the verge of insolvency.