The German government has made shareholders of the troubled mortgage bank Hypo Real Estate an offer they can hardly refuse. Under a new expropriation law, the Special Fund for Financial Market Stabilization -- known as Soffin after its German acronym -- has offered HRE shareholders €1.39 ($1.84) per share as part of a bid to take over the lender.
Soon to be government property.
The deal, which was made public Thursday, is higher than was previously expected. Media reports had suggested Berlin would offer just €1.26 per share. "The offer gives HRE shareholders the opportunity to divest at an attractive price," Soffin said in a statement. HRE's share price jumped by over 14 percent to €1.38 on Thursday morning in reaction to the news.
The available shares would cost a total of €290 million under the offer, Soffin said. The fund, which was set up in October 2008 to stabilize the German financial system, already has an 8.7 percent stake in the bank after buying 20 million new HRE shares for €60 million.
The German government wants to take over HRE to prevent it from going bust and to avoid the market turbulence an insolvency would cause. An additional goal is to secure the state and private aid, worth €102 billion, which has already been given to the bank. HRE would have collapsed long ago without state intervention.
Soffin said in the statement that if HRE were to go bankrupt "it would have substantial and unpredictable effects on the national and international financial markets." It did not specify a timeframe for the takeover, although it did say it wanted to put the offer into effect "very quickly."
German President Horst Köhler signed the expropriation bill -- known in German as the tongue-twisting Finanzmarktstabilisierungsergänzungsgesetz -- into law on Tuesday. The legislation came into effect on Thursday. According to the controversial new law, the government has until the end of June to expropriate HRE's shareholders if they do not sell their shares voluntarily. Were Berlin to carry out an expropriation of HRE, it would be the first such move since the 1930s.
US private equity investor J.C. Flowers, which holds 24 percent of HRE's shares, has opposed the nationalization of the bank and has already threatened to take legal steps against an expropriation.
HRE was among the first of Germany's banks to be hit by the financial crisis. In early 2008, the bank wrote down €390 million before needing a €50 billion bailout last October. When Germany passed a €500 billion bank bailout bill later that same month, HRE was the first bank to take advantage.
dgs -- with wire reports
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