German Cabinet Meets Today to OK Hypo Nationalization

Draft proposals which would pave the way for stricken lender Hypo Real Estate to be nationalised are due to be agreed today at a Cabinet meeting of the German government.

The new draft law is set to give the German government the power to take control of a financial institution which threatens the stability of Germany’s financial system.

Germany’s second largest commercial lender Hypo has received €87bn of loans since last September but is still vulnerable to collapse.

The draft bill specifies that the nationalisation would have to take place before the end of June, as opposed to the end of 2009 deadline originally cited. The short term nature of it makes it clear that the proposals are targeting Hypo specifically.

In June 2008, private equity firm JC Flowers bought a 24.9% stake in Hypo for €1.13bn at a price of €22.50 per share.

Negotiations between the German government and the investor have been ongoing with a clause in the bill stating that the expropriation of private shareholders is a “last resort” action and the bank would need to be considered a failure before the state takes a majority stake.

Should Hypo be nationalised, it would be the first bank the German government has taken over since the second world war.

“We’re not doing it to cancel out the social market economy but rather to make the social market economy work again,” explained German Chancellor Angela Merkel.

Source: Thomson Merger News