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German Government Gives More Billions to Hypo Real Estate

German mortgage lender Hypo Real Estate is set to receive an additional 10 billion euros in state credit guarantees. But will that be enough to save one of the earliest and most prominent victims of the credit crunch?

Hypo Real estate logo under a sign pointing down

Things have been looking down for Hypo Real Estate

Hypo Real Estate announced on Wednesday, February 11, it would be receiving the extra funds from Soffin, the government agency responsible for doling out the money from Berlin's 480-billion-euro ($621-billion) Financial Markets Stabilization Fund.

The cash injection comes on top of some 102 billion euros in loans and other support the bank has already received.

Hypo Real Estate suffered severe liquidity problems last September in the wake of the subprime mortgage meltdown in the United States. It has come closer to bankruptcy than any other leading German financial institution.

The bank has been struggling to survive ever since.

Hypo Real Estate said that the additional guarantees would be used to collateralize debt securities due for repayment this May.

State as shareholder

Peer Steinbrueck

The finance minister has threatened the bank with nationalization

Meanwhile, the German government is set to begin negotiations with Hypo Real Estate major stockholder J.C.Flowers about acquiring shares in the bank. Last year Flowers bought around a quarter of Hypo Real Estate stock for 22.50 euros a share, but the value per stock has since dwindled to 1.30 euros.

Germany's Social Democratic Finance Minister Peer Steinbrueck has in the past threatened to nationalize the bank if Flowers remained unwilling to sell his shares at market prices.

That idea has met with resistance from conservatives, but some financial experts think that partial nationalization may be the only alternative for seriously troubled banks.

"The Hypo Real Estate Bank, for example, urgently needs to get away from the market," banking professor Hans-Peter Burghof told the DPA news agency, adding that the amount of taxpayer money already pumped into the institution "bordered on welfare for shareholders."

Negotiations between the government and Flowers are scheduled to begin in Berlin on Thursday.

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