GERMANY’S FEDERAL government has taken the first step to take over Hypo Real Estate (HRE), announcing the purchase of 20 million shares amounting to an 8.7 per cent stake in the troubled property lender.

The €60 million cash payment is only a drop in the bucket of the Munich bank’s cash-flow problems at Dublin subsidiary Depfa that have required state loans and guarantees worth €102 billion since last November.

HRE chief executive Axel Wieandt welcomed the state’s purchase of shares at the legal minimum of €3 each as “good news”.

“With the proposed long-term liquidity and capital support, has put in place the necessary requirements for HRE to continue,” he said in a conference call.

“We welcome this step. It is in the interests of the company and clearly good news.”

The federal government views HRE as a “system relevant” bank and is concerned that its collapse could have similar, far-reaching consequences to the fall of Lehman Brothers in September.

Berlin intends to take full control of the lender, but has yet to decide how to proceed. A complete expropriation is the most likely, and most controversial, approach: a bill allowing such a takeover is working its way through parliament and is expected to become law next week.

The German government sees expropriation as the best way to protect the bank from collapse while protecting guarantees and loans already given.

Reports in the German media yesterday suggested HRE may require at least another €10 billion guarantee in coming days.

The bank’s largest investor consortium, holding 24 per cent and led by US investor Christopher Flowers, has opposed the expropriation plans.

Mr Flowers favours a solution where a government investment would dilute existing shareholdings, suggesting that expropriation will harm Germany’s business reputation worldwide.

He resigned from the HRE board on Friday, citing potential conflicts of interest.