Germany closer to nationalisation of Hypo RE

German lawmakers have agreed key parts of a bill to allow an expropriation of shareholders in Hypo Real Estate, paving the way for parliament to approve the controversial plans on Friday.

A nationalisation of the lender, which found itself unable to get refinancing last year after the collapse of Lehman Brothers, would be the most radical step taken in Germany to support banks since the financial crisis arose. The measures, modifying aspects of a bailout scheme set up by Berlin last year, have been urged by the government so it can restructure the company without challenges from outside shareholders.

Hypo Real Estate's largest shareholder, the JC Flowers private equity group, opposes the expropriation and wants the government instead to take a stake of 75% in the lender via a capital raising.

The German government has this week extended its guarantee for notes issued by Hypo Real Estate Group until 31 December 2009. The guarantee collateralises EUR 15 bn in notes issued by Hypo Real Estate Bank which were subscribed by a consortium of German banks and insurance companies.

The guaranteed notes form part of the EUR 50 bn liquidity facility which has been provided by the consortium and Deutsche Bundesbank since 13 November 2008. The overall facility was set up to run until 31 December 2009, but its validity was set for an initial expiration date on 31 March 2009, in line with applicable EU law.