German President Horst Koehler has signed a controversial bill into law allowing the government to take full control of troubled mortgage lender Hypo Real Estate, if necessary.
Hypo Real Estate is expected to be under German government control soon
The measure marks the first time in modern-day Germany that bank shareholders face possible expropriation. Both chambers of the German parliament have already passed the bill.
The new law allows the government to seize shares by force if investors turn down its offer for the stocks. It gives the government until June 30 to expropriate shareholders if it chooses.
Conservatives sharply criticized the law, saying a forced takeover was comparable to communism. But the government of Chancellor Angela Merkel, herself a member of the conservative Christian Democrats, said it would only take control of Hypo Real Estate (HRE) by force as a last resort.
The law has been opposed by the bank's biggest stakeholder, US investor Christopher Flowers. He owns nearly 24 percent of the bank.
Last month, the government took an 8.7 percent stake in HRE for 60 million euros ($79.5 million) via Soffin, the agency responsible for distributing the money from Germany's Financial Markets Stabilization Fund. HRE said at the time that it was "a prerequisite for the intended recapitalization of Hypo Real Estate" that the government gain full control.
HRE posted a loss of over 5.4 billion euros in 2008. Without government support, the bank would collapse.
Media reports said Soffin is expected to make shareholders a takeover offer before Easter.