Source: Bloomberg.com

Chancellor Angela Merkel’s Cabinet approved a draft bill allowing the state to seize control of property lender Hypo Real Estate Holding AG, paving the way for the first German bank nationalization since the 1930s.

The bill allows the government to carry out compulsory purchases of shares held in “systemically relevant” banks. To assuage lawmakers leery of scaring off foreign investors, the bill includes caveats to ensure such a step can be taken only as a last resort.

Merkel’s government “has done its utmost to avoid the label of nationalization, shuddering at being accused of seizing private property,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, said in an interview. “The legislation reflects the facts: the bank is only being kept alive with taxpayers’ cash, truckloads of it, and even if it’s small consolation to Hypo’s shareholders, this one-off step may be necessary.”

Merkel’s Christian Democrats have bowed to their Social Democrat coalition partners’ plan to allow a forced takeover of Hypo after shareholders including J.C. Flowers & Co. LLC failed to agree on a price for selling their stock. Munich-based Hypo’s stock plunged 92 percent since Sept. 25 as it has received 102 billion euros ($128 billion) in public guarantees and credit.

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