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German government takes 8.7% stake in Hypo Real Estate

The move by the German Financial Markets Stabilisation Fund (SoFFIN) is a prelude to full nationalisation.

Germany’s federal bail-out fund has taken an 8.7 percent stake in Hypo Real Estate.

The purchase of 20 million new shares by the German Financial Markets Stabilisation Fund (SoFFIN) is a step towards nationalisation of the bank, said Hypo over the weekend.

On Friday, Germany-based Hypo revealed annual pre-tax losses of €5.375 billion compared with a profit of €862 million for 2007.

The loss is partly down to a goodwill writedown at public infrastructure subsidiary DEPFA bank. It also said net commission income had fallen from €234 million to €32 million because it has been underwriting fewer commercial real estate loans, and had been making less revenues from asset management.

In addition, derivative positions with Lehman Brothers have cost it €150 million, while securities related to the collapsed US bank cost it a further €25 million. Worse still, shares in collapsed Icelandic banks lost Hypo €38 million. Meanwhile, the bank has written off a €74 million investment in Australian firm, Babcock & Brown.

Chief executive Axel Wieandt said Hypo anticipated net corporate losses for at least the next two years.

News of the loss and SoFFIN taking an 8.7 percent stake came shortly after Christopher Flowers and Richard Mully resigned from Hypo’s supervisory board. Flowers, the founder of US firm JC Flowers and Mully, a senior partner of Grove International stepped down on Friday to avoid conflicts of interest.

Flowers, Grove International Partners, and Japan’s Shinsei bank own around 24 percent of the bank having invested more than €1 billion in 2008.