Hypo Real Estate, one of Europe’s largest property lenders, has been rescued from collapse.

The German government said today that it would jointly with a consortium of private banks provide a E35bn (£27.9bn) rescue package in forms of credit guarantees for Hypo Real Estate Holding and its subsidiaries Depfa, Hypo Real Estate Bank, Hypo Real Estate Bank International and Depfa Deutsche Pfandbriefbank.

The measure had been ‘absolutely necessary,’ finance ministry spokesman Torsten Albig told reporters at a government press conference.

Another government spokesman Ulrich Wilhelm said that the action was needed to prevent the financial crisis from widening in Germany.

The package would be split into two tranches, Albig said, and the government did not plan to nationalise Hypo Real Estate.

The first tranche of E14bn (£11bn) will be assumed 60% by private banks and 40% by the government.

The second tranche of E21bn (£16.7bn) will be fully assumed by the federal government.

Frankfurt-listed Hypo said it would have to take a write-down on goodwill of its Depfa unit, without specifying the size, and would scrap its dividend.

Hypo bought Depfa a year ago for more than E5bn (£4bn), giving it a central role in European public financing.