Germany launches first bank nationalisation

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Berlin will buy out shareholders in Germany’s troubled Hypo Real Estate.

FRANKFURT – Germany launched Thursday its first bank nationalisation since the republic's birth in 1949, with a key US shareholder set to pay a high price as officials try to stabilise financial markets.

Berlin, acting through the Financial Markets Stabilisation Fund (SoFFin), said it would offer shareholders in troubled Hypo Real Estate EUR 1.39 per share for their stock.

That price means the government, which already holds 8.7 percent of the bank, will have to pay about EUR 290 million to buy out the other shareholders.

Investors will have two weeks to tender their shares once the offer is approved by the stock market regulator Bafin.

Analysts recommended the bid but Christopher Flowers, an American who heads a consortium that owns almost 24 percent of the bank, played his cards close to the chest.

"The preference of JC Flowers is still to stay in the capital of the bank," a spokesman told AFP, before adding: "However, Mr Flowers will study the offer."

Flowers paid EUR 1.1 billion for the holding or EUR 22.50 per share.

A SoFFin statement said the offer price "represents a premium of approximately 10 percent to the statutory minimum offer price of EUR 1.26."

HRE shares jumped 12.2 percent to EUR 1.38 in midday Frankfurt trade, while the MDAX index on which they are listed showed a gain of 0.87 percent overall.

SoFFin chairman Hannes Rehm said the offer "underlines that it wishes to stabilise the financial market using a market-oriented approach if possible and by adhering to existing market practice."

A law made to order for the HRE bid that took effect Thursday nonetheless allows the government to expropriate reluctant shareholders, although officials stress that would only be a last resort.

"It's a very honest offer," said Christoph Schalast, a professor at the Frankfurt School of Finance.

"The state clearly wants to signal that it seeks to avoid expropriations" of private interests, he told AFP.

Dow Jones Newswires quoted the German DSW association of small shareholders as saying it considered the government offer "attractive considering the lack of other options."

Stressing the operation was a "voluntary public takeover offer," SoFFin said further details would be released in the next few days after its approval by BaFin.

The authorities said they feared a failure of HRE could be as damaging as that of the US investment bank Lehman Brothers in September.

"If HRE were to become insolvent, this would have substantial, barely quantifiable consequences for the national and international financial markets," SoFFin said. "This in turn would have a considerable impact on the entire national economy."

Sal Oppenheim equity strategist Thomas Stoegner was sceptical about the government's stated goal of stabilising financial markets though the deal.

"I don't think it will stabilise the whole financial market but it’s a better alternative to letting Hypo Real Estate fail," he told AFP.

"Unfortunately you have to say the bank is too big and too important to fail" because of its key role in financing infrastructure and providing credits to local governmental bodies.

HRE has already received more than EUR 100 billion in private and public aid to keep it afloat and Stoegner said it would need about EUR five billion more "at the end of the day."

The bank posted a 2008 net loss of EUR 5.46 billion as it struggled in the fallout from the worst global slump since the 1930s.

Germany also owns a stake of 25 percent plus one share in the second biggest German bank, Commerzbank, acquired as it sought to bolster the lender.

AFP / Expatica

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