Sept. 29 (Bloomberg) -- Hypo Real Estate Holding AG, Germany's second-biggest commercial-property lender, will receive a 35 billion-euro ($50 billion) guarantee from the government and private banks to save it from potential collapse.

The bank's rescuers will provide an emergency credit line in two allotments, of about 14 billion euros and 21 billion euros, a German government official said. Private banks will pay 60 percent of the first transfer and the Berlin-based federal government will put up the entire second amount, the person said.

Hypo Real Estate said it needs the loan to shield itself from financial-markets turmoil after its Dublin-based Depfa Bank Plc unit ran into problems getting short-term funding. Hypo Real Estate's financing agreement resolves issues sparked by the global credit crisis, German financial regulator BaFin and the Bundesbank said in a joint statement.

``This is a shock, there's simply no short-term financing,'' said Manfred Jakob, a Frankfurt-based analyst at SEB AG who is reviewing his rating of the stock. ``The government's involvement shows how vehement the market crisis is.''

Hypo Real Estate fell as much as 76 percent to 3.30 euros in Frankfurt trading, the biggest drop since its October 2003 initial public offering. The stock was down 65 percent as of 12:34 p.m. local time, valuing the company at 1.07 billion euros. Commerzbank AG, owner of Germany's biggest commercial-property lender, dropped as much as 27 percent.

Global Crisis

The global financial crisis that drove Lehman Brothers Holdings Inc. into bankruptcy and prompted U.S. President George W. Bush to seek a $700 billion bank rescue package is weighing on European financial-services companies. Fortis received an 11.2 billion-euro government bailout yesterday and Bradford & Bingley Plc was seized by the U.K. government today.

Hypo Real Estate said it will write down the goodwill on its Depfa stake, which will have a ``significant material effect'' on earnings. The company doesn't expect to pay a 2008 dividend.

``The new credit facility is a far-reaching and innovative approach which allows us to adjust our funding structure in order to accommodate the current malfunctioning of the international money markets,'' Chief Executive Officer Georg Funke said in a statement. ``Hypo Real Estate Group will not need to go back to the unsecured money market for its refunding in the foreseeable future.''

Hypo Real Estate, run by 53-year-old Funke since it was spun off from HVB Group in 2003, reported unexpected writedowns on collateralized debt obligations on Jan. 15, leading to a record 35 percent drop in its shares. Hypo Real Estate said on Aug. 13 that second-quarter pretax profit plunged 95 percent because of further markdowns on debt-related investments.

New Investor

The company sought a new investor earlier this year to shore up confidence. A group led by J.C. Flowers & Co., the buyout firm run by Christopher Flowers, in June bought a 24.9 percent stake for about 1.13 billion euros.

Europhypo AG, Germany's biggest commercial-property lender, is owned by Commerzbank.

``Refinancing of all subsidiaries including Eurohypo is centrally organized and secured over the long term,'' Reiner Rossmann, a spokesman for Commerzbank, Germany's second-biggest bank by assets, said in an interview today. ``Refinancing needs for 2008 are already covered'' and the bank's deposits provide a ``stable'' refinancing source, he added.

Commerzbank was down 14 percent to 12.35 euros at 12:37 p.m. in Frankfurt after earlier dropping the most in more than five years.

To contact the reporters on this story: Brian Parkin in Berlin at bparkin@bloomberg.net; Jann Bettinga in Frankfurt at jbettinga@bloomberg.net

Last Updated: September 29, 2008 06:42 EDT