Berlin ready to move on Hypo Real Estate bill

German lawmakers have agreed key parts of a bill to allow an expropriation of shareholders in Hypo Real Estate, paving the way for parliament to approve the controversial plans on Friday .

A nationalisation of the lender, which found itself unable to get refinancing last year after the collapse of Lehman Brothers, would be the most radical step taken in Germany to support banks since the financial crisis arose. The measures, modifying aspects of a bail-out scheme set up by Berlin last year, have been urged by the government so it can restructure the company without challenges from outside shareholders.

Hypo Real Estate's largest shareholder, the JC Flowers private equity group, opposes the expropriation and wants the government instead to take a stake of 75 per cent in the lender via a capital-raising.

"JC Flowers is disappointed that the government continues on the path to expropriation and nationalisation given that we have provided a clear alternative that secures the future of HRE and better protects the German taxpayer and the rights of all shareholders," the private equity group said after lawmakers in parliament's finance committee approved the draft law.

Many politicians on the centre-right of Germany's ruling coalition also oppose a possible expropriation, which is supported as a measure of last resort by Angela Merkel, the chancellor, and the finance ministry. Officials still hope investors will agree an alternative way for the government to take full control of the Munich-based lender, which is being kept afloat with €102bn ($135bn) of guarantees to allow it to raise short-term finance. JC Flowers said it was "committed to a constructive dialogue".

Regulators say time is running out for measures to support the bank, which is reckoned to need up to €10bn of capital as well as longer-term guarantees for its borrowing. The bank's results must be published this month, which could trigger a need for more capital.

Politicians have been unwilling to commit more support to the company until they can be sure of controlling its future. Regulators say HRE's links to other lenders and Germany's market for Pfandbriefe – bonds backed by ring-fenced pools of mortgages and other assets – make it systemically important.

Timo Tschammler, managing director of international investment at DTZ, the property adviser, said the bank's collapse "would not only damage the buyers of the German Pfandbriefe but also the effectiveness of the bonds themselves as instruments of refinancing".

JC Flowers and another private equity investor led a group that bought almost a quarter of HRE last year in a €1.1bn deal. But shares have plummeted from €22.50 then to less than €1.

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