German house clears decks for Hypo takeover

04 April 2009

German Chancellor Angela Merkel's government moved a step closer to seizing control of Hypo Real Estate Holding AG after the upper house of parliament backed a bill that allows the forced nationalisation of banks for a specified time period.

Germany's finance minister Peer Steinbrück has said the bill is solely aimed at Hypo Real Estate, in which the government took an initial 8.7 per cent stake last week. Hypo has already received €102 billion in loans and state guarantees.

Forced nationalisation of the bank and the expropriation of Hypo shares from shareholders is planned as an option if the government fails to secure a controlling majority in the bank, which it believes is necessary to restructure the Munich-based lender. It seeks to gain a stake of more than 90 per cent.

The bill foresees that an expropriation of shareholders will be possible only if the finance ministry can't find an alternative buyer. As a second precondition, a shareholders' meeting must have failed to generate a majority for capital measures, or if the decision can't be included in the official registry in time. Hypo Real Estate shareholders are entitled to appropriate compensation.

The government is in talks with Hypo's largest shareholder, investor J Christopher Flowers.. Flowers wants to keep a stake and help the German government restructure the bank, saying that a 75 per cent-plus-one-share majority holding by the government would be sufficient for a revamp.

Flowers is the founder and managing director of private-equity investor J C Flowers & Co, which coordinates an investor group that holds about 23.7 per cent of Hypo Real Estate.