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Germany moves to nationalize HRE

THE German government yesterday launched its effort to nationalize battered lender Hypo Real Estate Holding AG, announcing a voluntary takeover offer worth some 290 million euros (US$385 million).

The government's bank rescue fund said it would offer 1.39 euros per share of the commercial property lender.

It said the offer "provides an opportunity for HRE shareholders to sell their investment at an attractive price" and was some 10 percent above the statutory minimum of 1.26 euros per share.

It adds up to about 290 million euros for all shares not yet in the government's hands. Hypo Real Estate shares leapt by 15 percent to 1.38 euros after the announcement.

The rescue fund said in a statement yesterday that "if HRE were to become insolvent, this would have substantial, barely quantifiable consequences for the national and international financial markets."

The government moved last month to take an initial 8.7-percent stake in HRE, buying new shares in the Munich-based company for 60 million euros.

The fund said then that it was "a prerequisite for the intended recapitalization of Hypo Real Estate" that the government "gain full control."

New law

A new law signed this week by President Horst Koehler would allow the government to expropriate shareholders if voluntary efforts to secure stock fail.

It has until June 30 to do so.

United States private equity firms JC Flowers & Co LLC and Grove International Partners LLP and their shareholders currently own 21.7 percent of HRE.

New York-based Flowers said last week that it "remains open to constructive talks" with the German government bank rescue fund - but added that it "reserves the right to pursue all other options, including legal recourse, to safeguard the interests of its investors."

Flowers said yesterday that it would rather remain a shareholder but had no comment on the offer details.

HRE has become the most prominent German victim of the financial crisis. It ran into trouble last September after its Dublin-based unit Depfa Bank PLC failed to find short-term funding amid the widening credit crunch.

Since then, the government has shored it up with loan guarantees covering some 87 billion euros. Officials have argued that the government needs to be able to exert direct control after intervening repeatedly with guarantees.

Finance Minister Peer Steinbrueck said last weekend that he does not believe any other German banks need a government takeover.


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