German Government Buys Stake in HRE

Shares in troubled German mortgage lender HRE surged on Monday on expectations of a government takeover offer after the government said it was buying an initial 8.7 percent stake as a prelude to a full nationalization.

DDP

HRE's head office in Munich.

Shares in troubled German mortgage bank Hypo Real Estate jumped as much as 47 percent to €1.67 ($2.22) on Monday morning following Saturday's announcement that the government is taking an initial 8.7 percent stake as a prelude to acquiring full control.

The government's bank bailout fund Soffin will buy 20 million new HRE shares for €60 million. That is a tiny fraction of the recapitalization HRE needs after getting into trouble in the financial crisis, but it was seen by investors as a sign of the government's commitment to saving the bank.

The bank on Saturday reported it made a pre-tax loss of €5.375 billion in 2008 and said it expected to remain loss-making for at least two more years.

Hypo has already been propped up with €102 billion in debt guarantees, and further assistance is being prepared. The government is committed to keeping HRE in business because it is regarded as vital for Germany's mortgage-backed Pfandbrief bond market.

The Finance Ministry in Berlin reiterated on Sunday that it remained determined to wholly acquire HRE, and that the a new expropriation law to this end would be passed this week by the upper house of parliament, the Bundesrat.

The law is controversial because it gives the government the right to force shareholders to sell their shares, an especially sensitive issue in Germany given how private businesses were expropriated by the Nazis and by the government of communist East Germany.

cro -- with wire reports