HRE repeats call for state support amid talk of government takeover

Hypo Real EstateMunich  - Ailing mortgage lender Hypo Real Estate (HRE) needs further capital injections from the German state after a loss of more than 5 billion euros (6.7 billion dollars) in 2008, chief executive Axel Wieandt said Sunday.

HRE had confirmed Saturday that the German government is to recapitalize the bank with an initial 8.7-per-cent share purchase.

Wieandt was not able to confirm how much capital the bank needed,

but said this was to be discussed with government bank bail-out agency SoFFin, which is expected to take long-term control to rescue the mortgage lender.

"The stabilization and rescue of HRE must succeed, in all our interests," Wieandt said in a teleconference Sunday.

HRE, which has already received a capital injection of 87 billion euros from the state, is thought to urgently need up to 10 billion euros of additional funding.

In recent weeks, the head of SoFFin, Hannes Rehm, had conjectured that the consequences of allowing HRE to collapse could be worse than the demise of US investment bank Lehmann Brothers, which collapsed in September.

Wieandt said Sunday he was hoping additional government funding would bolster the bank's capital ratio to roughly 8 per cent of total deposits.

HRE's 2008 balance sheet showed a capital ratio of 3.4 per cent, which is below the minimum considered viable by Germany's financial regulator (BaFin).

In the coming weeks, 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, including US investor Christopher Flowers, will initially remain on board, although the government stake will dilute their holdings.

The ultimate condition for SoFFin to stabilize the ailing bank is a complete state takeover, either through the bail-out fund or by direct government intervention.

The federal government is currently in discussion with the 16 German states over a bill detailing the conditions for a state expropriation of HRE, which it hopes will be passed by the upper house of parliament Friday. dpa

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