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Video by Douglas HERBERT

Latest update : 2009-04-09

Germany has begun its nationalisation plan for the troubled bank Hypo Real Estate (HRE). Berlin fears that the banks's potential failure could be as damaging as that of the US investment bank Lehman Brothers in September.

AFP - The German government launched Thursday a takeover of troubled Hypo Real Estate bank, aiming to stabilise financial markets amid the worst global slump since the Great Depression.

Berlin, acting through the Financial Markets Stabilisation Fund SoFFin, said it would offer shareholders 1.39 euros (1.85 dollars) per share, with full details to be published in the coming days.

"The offer price of 1.39 euros per HRE share represents a premium of approximately 10 percent to the statutory minimum offer price of 1.26 euros," a SoFFin statement said.

The offer price values the takeover at 290 million euros.

HRE shares jumped 15 percent to 1.38 euros in opening Frankfurt trade following the announcement.

SoFFin chairman Hannes Rehm said his group's offer and premium "underlines that it wishes to stabilise the financial market using a market-oriented approach if possible and by adhering to existing market practice."

The operation could lead to the expropriation of a 24 percent stake controlled by US investor Christopher Flowers although German officials have said they would only take such a radical measure as a last resort.

Stressing the operation was a "voluntary public takeover offer to the shareholders of Hypo Real Estate," SoFFin said further details would be released "within the next few days after approval by (the German stock market regulator) BaFin."

SoFFin said it "aims to acquire full control of HRE as this is necessary to ensure recapitalisation and restructuring measures can be implemented swiftly and on a legally secure and economically viable basis."

German authorities fear that a failure of HRE could be as damaging as that of the US investment bank Lehman Brothers in September.

"If HRE were to become insolvent, this would have substantial, barely quantifiable consequences for the national and international financial markets," SoFFin said.

"This in turn would have a considerable impact on the entire national economy."

Germany recently passed a controversial law that took effect on Thursday, allowing the state to nationalise HRE.

A spokesman for Flowers told Dow Jones Newswires that Flowers would study the offer but that he still preferred to remain an HRE shareholder.

The state already owns 8.7 percent of the specialist property lender, which has received more than 100 billion euros in private and public aid to keep it afloat.

HRE posted a 2008 net loss of 5.46 billion euros as it struggled in the fallout from the worst global slump since the 1930s.

Date created : 2009-04-09