GERMANY BEGAN proceedings to take over the troubled property lender Hypo Real Estate (HRE) yesterday, a day after a new “expropriation” Bill became law.
The finance ministry in Berlin informed the financial regulator, through its Soffin bank rescue fund, that it was prepared to make an offer of €1.39 per share, valuing the stricken bank at about €290 million.
The regulator has 10 days to approve or reject the plan before an official offer can be made.
Six months ago, the HRE group came close to collapse over liquidity problems attributed to its Dublin subsidiary Depfa.
Officials in Berlin say a state takeover is vital to protect taxpayers’ investment so far in the bank, and to stabilise Germany’s important Pfandbrief or covered bond market.
But it remains unclear whether the bank’s largest shareholder, a consortium led by US investor Christopher Flowers, would agree to such a deal.
The consortium paid €22.50 per share when it bought a 24 per cent stake in the company last May.
Since last September’s state bailout – loans and guarantees worth €102 billion and counting – HRE shares have plunged to as low as 64 cent. They traded yesterday at just below the value mentioned by the government, at €1.37.
A spokesperson for Mr Flowers said yesterday that the consortium still had a “clear preference to remain a shareholder and be treated exactly the same as other shareholders” in other banks which availed of help from the Soffin rescue fund.
Berlin has several options available, the most extreme of which is a full expropriation under the new legislation that would wipe out the Flowers consortium’s €1.1 billion investment.
The second option, a takeover offering a small premium over the €1.26 per share legal minimum, would allow Berlin to increase its current 8 per cent stake to a majority holding and push for an increase in capital. That would dilute the holdings of Flowers and other owners.
Avoiding an expropriation would placate financial investors and the opposition Free Democrats, likely to be a key coalition partner after September’s general election.
“It all depends now on whether Flowers wants to continue playing poker,” said Wolfgang Gerke, a Munich financial analyst. “It’s natural that he wants to minimise his losses, but he must realise too that, without the state, the bank would have already collapsed and his investment would have been lost anyway.”
