GERMANY’S second biggest commercial property lender was on the brink of collapse last night after a consortium of banks backed out of a €35 billion (£27 billion) bailout of the stricken lender.

The breakdown of the rescue of Hypo Real Estate will send fresh alarm through the markets that a raft of emergency measures enacted by European governments as well as the approval of the historic $700 billion (£396 billion) bailout by the American government in the last week have done little to keep the crisis from deepening.

Under the Hypo deal, which had been brokered by Berlin last week, a consortium of German banks had agreed to put up about €8.5 billion of a €35 billion emergency credit injection to keep the company afloat. The German taxpayer would have footed the rest of the bill.

“We are fighting for the future existence of the company,” the bank’s spokesman Hans Obermeier warned last night.

In a statement, the lender said the banks had withdrawn their support for the deal. “The intended rescue package involved a liquidity line to be provided by a consortium of several financial institutions. The consortium has now declined to provide the line,” it said.

The bank added it was “determining the consequences of this for the legal entities within the group” and that “alternative measures are being investigated”.

It is believed that the banks baulked after the company revealed its financial position had deteriorated this weekend.

The news added fresh urgency to crisis talks among European leaders, including Gordon Brown, the prime minister, who met in Paris yesterday to address the worsening global banking crisis.

It could mean Germany follows the lead of other countries such as Britain and Belgium which have been forced to nationalise collapsing banks.

Such a deal would wipe out a €1.1 billion investment made by JC Flowers, the US buyout firm.

Frozen credit markets have starved Hypo of the capital that it needed to operate.

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