The German government has taken a 8.7% stake in Hypo Real Estate as an initial step in the process of acquiring full control of the troubled property financier. The government, through the bank stabilisation fund, Soffin, is acquiring 20 million new shares at the minimum price prescribed by law of EUR 3 per share, to the exclusion of shareholders' pre-emptive rights.

The German government has taken a 8.7% stake in Hypo Real Estate as an initial step in the process of acquiring full control of the troubled property financier. The government, through the bank stabilisation fund, Soffin, is acquiring 20 million new shares at the minimum price prescribed by law of EUR 3 per share, to the exclusion of shareholders' pre-emptive rights.

The move was announced on Saturday as Hypo Real Estate posted an un-audited consolidated pre-tax loss of EUR 5.4 bn for 2008. A year earlier, the bank made a profit of EUR 862 mln.

Hypo Real Estate almost fell victim to the credit crunch last October but was saved by a EUR 50 bn public-private bailout. Since then, Soffin has extended billions of euros in guarantees to enable Hypo Real Estate to continue operating.

In a statement on Saturday, Hypo Real Estate said Soffin will extend further guarantees and implement measures to achieve a sufficient recapitalisation of the bank 'in the interest of stabilising the financial markets'.

A prerequisite for the intended recapitalisation of Hypo Real Estate Group is that either Soffin or the German government will gain full control. A new law is being introduced specifically to allow the German Federal government to nationalise Hypo Real Estate.

Dr Axel Wienandt, CEO of Hypo Real Estate Holding and Hypo Real Estate Bank, commented: 'With the intended long-term liquidity and capital support, for which we are very grateful, the Federal Republic of Germany - through Soffin - will provide the basis for the continued existence of Hypo Real Estate Group as a going concern.'

The bank confirmed last Thursday that the German government had formally extended the term of its EUR 20 billion guarantee until 31 December 2009. The guarantee forms part of the EUR 50bn bailout. In line with applicable EU law, the validity of the overall facility was set for an initial expiration date on 31 March 2009. Following Thursday's announcement, the full EUR 50bn package has been extended to the end of the year.