Glitnir, the struggling Icelandic bank, was partially nationalised today as the Icelandic Government bought a 75 per cent stake in it for €600 million (£478 million) to ensure broader market stability after it suffered liquidity issues.

At the same time the German Government went in to help German banks rescue Hypo Real Estate, the commercial property lender.

It is the country's first move to assist a large company hit by the turmoil in the global financial markets that is now taking its toll in continental Europe.

David Oddsson, chairman of the Central Bank of Iceland, said that Glitnir, which has operations in 10 countries, would have collapsed if the authorities had not intervened.

Glitnir shares were suspended and stock in other Icelandic banks, including Kaupthing, the country's largest, fell by 3.2 per cent, while Landsbanki dipped 4.3 per cent.

Glitnir said its core operations were solid and its funding efforts this year had been successful despite very challenging market conditions.

“Nonetheless, the events unfolding in international financial markets in the past two weeks have had unforeseen consequences drastically changing the conditions of Glitnir’s short-term funding,” the bank said.

The bank said its board and leading shareholders had accepted the Government’s offer.

Larus Welding, the chief executive who agreed at the Government’s request to remain the bank’s top executive, said Glitnir’s customers would not be affected by the move.

Meanwhile Stodir, an Icelandic investment group, has applied for a court-appointed administrator. According to its website, Stodir holds a 32 per cent stake in Glitnir.

In Germany, Hypo Real Estate has been rescued in a €435 billion bailout by a consortium of banks backed by the Government.

Hypo, Germany’s second biggest commercial property lender, ran into trouble through its heavy reliance on wholesale funding through covered bonds, senior bonds and short-term borrowing to run its business. As the money markets froze in recent weeks, its funding dried up.

A spokesman for Hypo Real Estate said, “A consortium from the German financial sector has provided Hypo Real Estate Holding, together with its subsidiaries Depfa Bank, Hypo Real Estate Bank and Hypo Real Estate Bank International with a multibillion euro short-term and mid-term credit facility sufficient to cover the group’s funding needs well into the future.”

Germany’s central bank, the Bundesbank, and financial regulator, BaFin, confirmed that they were involved in the efforts, and said: “The Bundesbank and BaFin now assume that Hypo Real Estate Group is secure.”

Kiri Vijayarajah, an analyst at Citigroup, said: “Hypo Real Estate also has other problems. It has exceptionally high leverage, which may no longer be viable. Also, we believe it is likely to experience losses on real estate loans, causing more damage to earnings and capital.”

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts