Munich  - The German federal government is to buy shares of ailing mortgage lender Hypo Real Estate (HRE), the bank announced Saturday.

The state is to initially recapitalize the Munich-based financier by purchasing an 8.7-per-cent stake in the business, HRE said in a statement.

In the long term however, the German government bank bailout agency SoFFin is to take complete control of the bank, HRE said.

SoFFin is to purchase 20 million shares at a price of three euros each, granting a 60-million-euro (80.1-million-dollar) capital injection to HRE. The current shareholders will initially remain on board.

However, the prerequisite for SoFFin to stabilise the ailing bank is said to be a complete state takeover, either through the bailout fund or by direct government intervention.

"To this end it is intended to make use of the options that will be provided by the German Financial Markets Stabilization Amendment Act, which is currently being discussed in the legislative process," a statement on the bank's website said.

The act, which specifies the conditions for a state expropriation of HRE, has been approved by Germany's lower house of parliament. State ministers are expected to grant their approval in an upper house consultation due Friday. (dpa)