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Berlin buys stake in Hypo Real Estate

NATIONALIZED: The 8.7 percent stake Germany is taking in the real estate company is a first step toward fully nationalizing it in order to prop it up as a going concern


People walk past the Berlin branch of German bank Hypo Real Estate on Jan. 16 last year. The German government has bought an 8.7 percent stake in the troubled bank, which it is seeking to nationalize, a newspaper reported on Saturday.


The German government will take an 8.7 percent stake in Hypo Real Estate Holding AG as a first step toward gaining full control of the company, the troubled commercial property lender said on Saturday.

The government’s bank rescue fund will acquire 20 million new shares in the bank for 60 million euros (US$81 million), Hypo Real Estate said in a statement — leaving it with about 8.7 percent of the company.

The company, which also announced on Saturday that it lost 2.57 billion euros in the fourth quarter and 5.46 billion euros over the whole of last year, described the stake as “a first step.”

It said that “it is a prerequisite for the intended recapitalization of Hypo Real Estate” that the government “gain full control.”

Hypo Real Estate 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 attract 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 influence on the bank after intervening repeatedly with guarantees.

Legislation that would allow the government to take over the bank fully by expropriating shareholders if necessary is currently making its way through parliament.

“With the intended long-term liquidity and capital support, for which we are very grateful, the Federal Republic of Germany ... will provide the basis for the continued existence of Hypo Real Estate Group as a going concern,” CEO Axel Wieandt said.

Also on Saturday, the bank reported huge losses for last year.

It said preliminary figures showed a net loss of 5.46 billion euros, a result impacted by a 2.48 billion euro hit from impairments related to Depfa and “exacerbated by numerous special effects.”

It reported a full-year pre-tax loss of 5.375 billion euros, compared with a profit the previous year of 862 million euros.

Hypo Real Estate had a net loss of 2.57 billion euros in the year’s final quarter, and a pre-tax loss of 2.48 billion euros.

That compared with a pre-tax profit of 5 million euros in the fourth quarter of 2007.

“For at least the next two years we can anticipate a loss situation,” Wieandt said. “We consider that the medium-term strategic prospects are positive.”

The company, which said it had assets totaling 419.7 billion euros as of Dec. 31, did not immediately provide fourth-quarter figures.

The government bank rescue fund, worth up to 500 billion euros, was set up last October.

Its actions have included a capital injection for Commerzbank AG, one of Germany’s biggest private banks, that left the government with a 25 percent stake.

US private equity firm JC Flowers & Co LLC and its shareholders own about 17 percent of Hypo Real Estate, while Grove International Partners LLC and its shareholders own about 6.7 percent.

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