Berlin mulls partial Hypo Real Estate nationalisation

The German government is considering partially nationalising distressed mortgage lender Hypo Real Estate (HRE), a spokesman for Chancellor Angela Merkel's CDU party told AFP on Wednesday.

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"I can confirm there is some thought in this direction," Otto Berhnardt, CDU (Christian Democratic Union) spokesman for financial affairs, said, adding that a decision could be make quickly.

A total of €50 billion ($66 billion) in cash and another €30 billion in loan guarantees provided to the bank so far appears not to have been enough to get its back on its feet.

On Thursday, Berlin said it would take a stake of 25 percent plus one share in Germany's second biggest bank, Commerzbank, after pumping in another €10 billion.

It was the first time the government had acquired a stake in a private bank since the international financial crisis erupted in mid-2007 and made Berlin the biggest single shareholder in Commerzbank.

HRE, meanwhile, was a front-line casualty when the US market for high-risk, or subprime, mortgages collapsed, putting the global financial system under unprecedented stress.

Berlin has set up a banking sector rescue package that provides up to €80 billion in cash injections and €400 billion in loan guarantees to prevent a collapse of the country's financial sector.

In December, HRE said it would slash its workforce by almost half in three years, part of a series of draconian moves to save it from bankruptcy. HRE and its Irish subsidiary Depfa were caught up in a liquidity crunch that worsened after the US investment bank Lehman Brothers declared bankruptcy in September.

HRE posted a net loss of €3.1 billion in the third quarter of 2008 and said that it expects additional losses in its fourth quarter and annual results.