Germany's government wants to buy Hypo Real Estate, the crisis-stricken lender, in what would be the country's first bank nationalisation since the 1930s. Soffin, the vehicle set up by the government to rescue banks, yesterday tabled a bid for Hypo, offering €1.39 a share for the bank, a 16 per cent premium to its value at the close of trading on Wednesday.
Hypo Real Estate already depends on government support for survival, having previously sought credit lines and loan guarantees worth more than €100bn (£90bn). But after losing €5.5bn last year, the bank, which has been harder hit by the credit crisis than any other German institution, remains below the minimum solvency levels required by the country's banking regulations.
The move by Soffin follows new laws introduced in Germany last week, which pave the way for bank nationalisations. Hannes Rehm, the chairman of Soffin, said he wanted to "stabilise the financial market", but a nationalisation of Hypo Real Estate will not take place without controversy.
Under German law, Soffin, which already owns a 9 per cent stake in the bank, could effectively force all shareholders to sell up if it is able to secure a majority holding. That could lead to a showdown with the US private equity group JC Flowers, which is the largest shareholder in Hypo Real Estate.
JC Flowers paid €22.50 a share for its holding in the bank a year ago, and has recently suggested that the German government should invest at €3 a share. The investor also warned last week that it would consider its legal options in the wake of the new legislation on banking nationalisation.
Nevertheless, banking experts backed the deal. Thomas Stögner, a Frankfurt-based analyst with Sal Oppenheim, said: "In my eyes, it's a very attractive offer that's more than the fair value of the company, and I'd recommend everyone take it."
Soffin warned that if Hypo Real Estate were to collapse, it "would have substantial, barely quantifiable, consequences for the national and international financial markets".
The bank is one of several major continental European financial services groups struggling to come to terms with problems caused by the credit crisis. ING, the Dutch group that has twice been bailed out by its government, said yesterday that it planned to sell off businesses with an estimated value of €8bn as it attempts to go "back to basics".
ING was caught out, in particular, after expanding into the US, where the retail savings assets it attracted were substantially invested in residential mortgage securities.