German lender Hypo Real Estate proposed slashing its 2007 dividend by two-thirds after it took a 390 million-euro ($580 million) hit on U.S. debt investments and posted a net trading loss.
Hypo Real is the latest bank to be sideswiped by the credit market crunch and the news drove its shares down 22 percent to 26 euros on Tuesday.
Preliminary results showed a combined 2007 pre-tax profit of 890 million euros including the impairment charge for investments in U.S. collateralized debt obligations (CDOs) and 50 million euros in costs for the acquisition of Depfa Bank.
"The revaluation of the U.S. CDO portfolio is in line with the conservative risk policy maintained by Hypo Real Estate Group and reflects the continuing weakness of financial markets, as well as the downgrades of this asset class by
rating agencies," the company said in a statement.
Hypo Real said it would propose a 0.50 euro per share dividend for last year, down from 1.50 euros for 2006.
"This conservative dividend policy will help secure a sound capitalization of Hypo Real Estate Group. This will enable the group to actively pursue opportunities for profitable growth in its core businesses...without having to
raise capital," it said.
It gave no net profit figures for 2007 but said it no longer expected to achieve a 12 percent return on equity after taxes.
The 2007 net trading loss was 60 million euros.
Hypo Real Estate said it expected 2008 growth momentum to materialize primarily in its public finance and infrastructure finance segments. Its commercial real estate finance portfolio was expected to remain stable.
Provisions for losses on loans and advances were expected to be higher than the 105 million euros for 2007.
It forecast 2008 group pre-tax profit at 1.0-1.2 billion euros and group return on equity after taxes between 10 and 12 percent assuming no major unexpected events emerge, especially in the credit and financial markets.