The German government and several banks together agreed to rescue from bankruptcy the mortgage lender Hypo Real Estate. Jochen Sanio, President of the German Federal Financial Supervisory Authority (BaFin), announced it on the 5th of October explaining that the agreement consisted in a €50 bn credit line in order to avoid the collapse of the nation's second-biggest commercial-property lender.
The deal will be executed by the German government, the German Central Bank, The BaFin and by representatives of the banking and insurance sectors.
Nevertheless, despite the rescue package being approved the previous day, on the 6th of October HRE's shares tumbled 37%. Looking at the broader picture, world stock markets have plunged as the Governments' bail-out plan failed to steam investor's fears.
"The fact is people are scared and the only thing they're doing is selling" said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. " Investors are cleaning out portfolios and getting rid of everything because nothing seems to be working". In figures, this translates in a drop of 7.85%, 7.39%, 9.04% and 3.58% registered by FTSE 100, DAX, CAC40 and DOW JONES respectively.
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