Munich  - Germany's government has told Hypo Real Estate (HRE), the biggest German casualty of the world financial crash, that it will obtain 90-per-cent control of the bank by way of an equity issue.

HRE disclosed the move in a board statement Friday from its head office in Munich.

Berlin would ask the shareholders at a meeting on June 2 to vote for an increase in equity from just under 700 million euros (925 million dollars) at present to 6.3 billion euros, with the German state pumping in all the new funds.

The equity issue would sharply dilute the stakes of the existing shareholders, leaving them with less than a tenth of voting stock.

The new equity would be held by SoFFin, the government agency charged with helping German banks via guarantees and equity infusions.

SoFFin disclosed earlier in Frankfurt that a government takeover offer for HRE of 1.39 euros per share had made little progress.

Only 1.28 per cent of shares had been acquired as of Thusrday afternoon, SoFFin said. That brought Berlin's present stake to 9.94 per cent. US investor JC Flowers has been dismissive towards the bid.

The HRE supervisory and executive boards advised shareholders Friday to accept the takeover bid for their shares. That offer expires on May 4. HRE stock rose 1.4 per cent in stock-market trading Friday to 1.41 euros.

Last month, Germany legislated compulsory purchase powers in case the shareholders do not accept the takeover bid.

HRE's problems arose at its Depfa Bank unit, which operated from largely deregulated Dublin. Depfa is a principal lender to German local government, raising bond issues for roads and new buildings.

The government has so far given the bank support worth 102 billion euros.(dpa)