Germany’s national banking sector stabilisation fund SoFFin would acquire the stake as a first step and “intends to gain full control over Hypo Real Estate Group” (HRE), said a statement from the bank.
“(SoFFin) intends to take action to stabilise Hypo Real Estate Group, in the interest of stabilising the financial markets,” the statement read, “SoFFin will implement measures to achieve a sufficient recapitalisation” of HRE. SoFFin will spend €60 million buying 20 million of the bank’s shares at €3 each.
The investment would “provide the basis for the continued existence of Hypo Real Estate Group as a going concern,” said Axel Wieandt, the bank’s chief executive, in the statement.
Following the announcement, HRE also released its unaudited earnings statement for 2008, reporting a hefty net loss of €5.46 billion, due largely to write-downs on intangible assets. “This result very much reflects the difficult situation on the capital and finance markets,” the bank said in the earnings statement.
The pre-tax loss was €5.375 billion, compared to pre-tax profits of €862 million in 2007. HRE expected to make losses until at least 2011.
“The financial year 2008 reflects the impact of the general crisis on the international financial markets and the specific extremely difficult situation for the Hypo Real Estate Group,” Wieandt said.
German parliamentary deputies last week approved on a first reading legislation that would lead to a nationalisation of HRE and the expropriation of US shareholder Christopher Flowers. Flowers heads a consortium that owns 24 percent of HRE.
The government said in a statement at the time that it would “do everything possible to avoid using expropriation” of HRE investors, which would only occur as a “last resort.”
Under the recently announced share deal, however, the state pre-empts the shareholders’ right to buy the stake. The law is due to be formally adopted on April 3.
Berlin is concerned that the failure of HRE could have catastrophic consequences similar to those sparked by the bankruptcy of US investment bank Lehman Brothers in September, which hit financial markets around the world.
HRE said in its earnings statement that complex “derivative” investments with Lehman Brothers had been the main cause of a €150 million expense on its own balance sheet. It said it was also hit by losses linked to Icelandic banks, which were largely wiped out by the financial crisis last year.
HRE has already benefited from more than €100 billion in private and public aid to keep it afloat.