Berlin - The German government's state banking fund launched its bid on Friday to take full control of troubled mortgage lender Hypo Real Estate (HRE).

The Financial Market Stabilization Fund (SoFFin) said its cash offer of 1.39 euros (1.82 dollars) per share would run until May 4. The price includes a premium of 10 per cent on the statutory minimum offer of 1.26 euros, SoFFin said.

The takeover was made possible by a special law which came into effect on April 9.

If shareholders do not accept the offer, the government has the power to take over the bank forcibly at the lower price of 1.26 euros per share.

Hypo Real Estate's biggest shareholder, a group controlled by US investor Christopher Flowers, has indicated it wishes to retain a stake in the bank. Flowers owns 21.7 per cent of Hypo Real Estate.

SoFFin is seeking 100 per cent of the bank, and has rejected Flowers' suggestion that three quarters would be enough. SoFFin said a takeover of all outstanding shares would cost it 290 million euros.

"In view of the serious situation in which Hypo Real Estate Holding AG currently finds itself, we consider 1.39 euros to be an attractive price," said SoFFin chairman Hannes Rehm.

He said 100 per cent control "is the only way we will be able to implement the necessary measures to stabilise the HRE Group and consequently the financial markets legally, sustainably, cost- efficiently and promptly."

On the Frankfurt Stock Exchange, HRE stock traded at 1.39 euros.

Berlin says it needs full control of HRE to ensure that 90 billion euros of taxpayer money infused into the bank is not wasted. The financial sector has given HRE loans or guarantees of a further 15 billion euros.

HRE's subsidiary Depfa dominates the market in Germany for bonds issued by municipalities seeking funds to build roads and schools.

The emergency legislation, described as a last resort to stabilize the German financial market, marks the first time in modern-day Germany that bank shareholders face possible expropriation.

The government has already acquired an 8.7-per-cent stake in the shaky lender as a first step to gaining full control, diluting Flowers' stake from its previous 24 per cent.

The Munich-based bank first disclosed its refinancing difficulties in October last year. Flowers and his fellow investors had bought in to the group last June at 22.50 euros per share.(dpa)