Germany's second biggest mortgage lender has been hit by the credit crisis [File: EPA]

A consortium of private lenders withdrew from the $48bn deal to rescue Hypo Real Estate (HRE) on Saturday, two days after it had been approved by the European Union.

The plan would have entailed the German government injecting $37bn, with a consortium of banks providing a "liquidity line".

HRE said in a statement on Saturday that the consortium "has now declined to provide the line".

The property lender said it was in the process of "determining the consequences"  on various divisions and that it would seek other solutions.

The rescue bid was the biggest in German history and came after HRE became mired in the global financial turmoil through its inability to refinance debt.

The Welt am Sonntag newspaper reported on Sunday that the bailout plan would have to be reworked because the bank's cash needs had been underestimated.

Deutsche Bank warned  that "by the end of the year, there will be a shortfall of up to 50 billion euros and even of 70 to 100 billion by the end of 2009," the newspaper said.

Deutsche Bank issued the warning late on Friday during a telephone conference with representatives of the German banking and insurance sector, according to the report.

HRE shares had lost three-quarters of their value last Monday, and although they clawed back some ground over the week, on Friday they closed 44.4 per cent down on their level one week earlier.

Paris summit

At Saturday's mini-summit with the leaders of France, Britain and Italy in Paris, Angela Merkel, the German chancellor, managed to keep a continent-wide emergency bailout fund, suggested by France, off the table.

"Each country must take its responsibilities at a national level," she said at a new conference with Gordon Brown, the British prime minister, Nicolas Sarkozy, the French president, and Silvio Berlusconi, the Italian prime minister.

Sarkozy insisted he had "never" raised the possibility of such a fund, but European officials in both Berlin and Paris confirmed that the idea had been mooted.

Merkel declined to comment on HRE's problems, but Peer Steinbrueck, the finance minister, expressed regret "that German taxpayers will have to pay for the shenanigans of banks that set up shop in Dublin to escape German taxes".

HRE's problems had been caused, in part, by debts incurred by the Irish subsidy Depfa, which it bought in October 2007.

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