Hypo Real Estate gives thumbs up to Flowers offer

FRANKFURT (Reuters) - Germany's embattled Hypo Real Estate HRXG.DE gave its backing to an offer from private equity investor JC Flowers and others to buy almost one quarter of its shares and declined to give an earnings forecast for 2008.

Hypo's stock price had been under pressure since it surprised investors with subprime-linked writedowns in January. This prompted the investment bank and property lender to look for a committed long-term shareholder to secure its future.

Last month, a trio led by JC Flowers offered to buy one quarter of the Munich financier's stock at 22.50 euros per share.

On Tuesday, the small investment bank said its management was in favor of the offer because it would stabilize the shareholder base and enable long-term planning.

Speaking to the bank's annual shareholder meeting in Munich, chief executive Georg Funke said he expected positive operating developments and saw "good prospects" in all its business areas, though volatile markets make it impossible to give a precise forecast for business in 2008.

In January Hypo announced subprime-linked writedowns, despite Funke earlier saying the company had not been affected.

The revelation shook confidence, sending shares down 35 percent, and they have barely budged since.

German investor group DSW on Tuesday urged other shareholders to withhold their backing from management at the annual meeting, saying Hypo's communication policy was more to blame for the bank's problems than the actual size of the writedowns.

Hypo's shares rose 0.7 percent to 21.75 euros by 1020 GMT, bucking a 0.5 percent drop in the European bank share index

<.SX&P>.

In March, Hypo, which finances the building of office blocks and shopping centers, warned the worsening situation threatened its 2008 pretax profit goal of over 1 billion euros ($1.58 billion).

Breaking the news of the writedowns earlier this year, Funke fended off questions from journalists as to whether he would quit over the matter, insisting that management had done a "fantastic" job.

The company is now being sued by a group of shareholders who bought stock in the bank on the strength of its claim that it was not affected by subprime problems.

Germany has been among the countries worst hit by the global credit crisis, which was triggered when defaults began rising on less creditworthy U.S. mortgages.

The crisis pushed company lender IKB IKBG.DE and state bank SachsenLB to the brink of collapse before both were saved by last-minute rescues.

(Additional reporting by Patricia Nann in Munich)

(Reporting by John O'Donnell; editing by Sue Thomas; Reuters messaging: john.odonnell.reuters.com@reuters.net; +49 69 7565 1273)

($1=.6349 Euro)