GERMANY - The German government has taken an 8.7% stake in Hypo Real Estate in its first step to taking full control and bringing stability to the Group.
The German Financial Markets Stabilisation Fund (SoFFin) will buy 20 million shares at the minimum price (€3) - valued at €60m - in a bid to keep Hypo Real Estate afloat and help stabilise the financial markets.
The decision to implement the recapitalisation comes after the stricken mortgage lender announced a net loss of €5.46bn for 2008.
Axel Wieandt, chief executive officer (CEO) of Hypo Real Estate Holding AG, said the "long-term liquidity and capital support" from SoFFin would keep the business going but warned of further losses for the next two years.
"Results for the coming years will also be considerably affected by costs for the liquidity support and the repositioning of the group, as well as further impairments in relation to receivables and securities which are expected as a result of the economic downturn," he said.
The firm plans to gradually adapt its business model to the current capital markets and real estate markets environment and is confident about its future.
"We consider that the medium-term strategic prospects are positive," said Wieandt.
SoFFin intends to use the options offered by the German Financial Markets Stabilization Amendment Act currently being discussed to recapitalise and restructure the group.
New shares will be issued at the minimum price for Hypo Real Estate Holding AG.
The total issue amount paid by SoFFin will be available to Hypo Real Estate Holding AG but not to existing shareholders.
So far, Hypo Real Estate Group has received €102bn in credit and debt guarantees from the German government and financial companies.
Hypo Real Estate said the €5.46bn loss in 2008, compared with a pre-tax profit of €862m the year before, was partly caused by impairments on goodwill and Dublin-based lender DEPFA's €2.48bn intangible assets.
The decision to nationalise the bank was unanimously supported by Hypo Real Estate Group's management and supervisory boards.
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