MUNICH-The split out of poor or non-performing assets from theHypo Real Estate group is to take place this week, after Germany'sfinancial markets stabilization fund, SoFFin, said it will transferaround $259 billion of assets into an institution for servicing andunwinding them.

The so-called "Bad Bank" has long been planned for the group,which is the parent of Deutsche Pfandbriefbank, once again highlyactive in real estate lending across Europe. SoFFin said anadditional $2.8 billion in capital will be provided for theinstitution, FMS Wertmanagement, which will be founded on Sept. 30.SoFFin will also provide capital of $13.5 billion to Hypo RealEstate as part of its bailout efforts.

Hypo Real Estate was struck by a liquidity crisis in 2008 as thefinancial crisis climaxed, and was subsequently, in effect,nationalized by the German government following a squeeze-out ofminority shareholders. That move was particularly fiercelycontested by US-based financier J.C. Flowers. New institution FMS,which will receive a transfer mainly consisting of poorlyperforming credits, securities and derivatives, will be providedwith capital of $5.3 billion.