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FINANCE

US investor sets price for Hypo Real Estate nationalisation

The US investor Christopher Flowers, a key shareholder in the troubled bank Hypo Real Estate, said Friday he expected to get about three euros per share for his holding if the bank is nationalised.

US investor sets price for Hypo Real Estate nationalisation
Petra, come home! Photo: DPA

“We are talking about nearly €3 ($3.8) per share,” Flowers told the German daily Frankfurter Allgemeine Zeitung.

On Thursday, the shares traded for €1.65, way below the €22.50 paid by Flowers when he bought a 24 percent stake in Hypo Real Estate (HRE) in late July. HRE is set to become the first bank in modern German history to be nationalised.

After soaking up more than €100 billion euros in direct state aid and public loan guarantees, it needs another 20 billion in guarantees and a fresh capital injection of around 10 billion euros to stay afloat, the newspaper said on Thursday.

The German government has proposed new laws that pave the way for HRE to be nationalised by seizing shares if necessary – a taboo in Germany as it revives memories of Nazi and communist expropriations of businesses in last century.

German authorities and Flowers had not agreed on a price for his holding and tension appeared to be growing between the two sides.

Flowers wrote to German officials to express his “disappointment” and criticise the lack of any new scheduled meetings, in a letter of which the newspaper obtained a copy.

Justice Minister Brigitte Zypries said meanwhile in an interview with the business daily Börsen-Zeitung that the alternative to a nationalisation of HRE was bankruptcy.

“Each day that delays a state takeover costs taxpayers money. A lot of money,” Zypries said.

The bank is a pivotal part of Germany’s economy. In addition to its real-estate activities, HRE plays a key role in the issuance of Pfandbriefe, bonds in which small investors, savings banks and insurance companies have placed large sums.

Authorities fear a chain-reaction on financial markets in Germany and further afield if the bank is allowed to go under.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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