JC Flowers and the German government are on course for a potentially damaging clash after the private equity firm rejected Berlin’s offer to buy shares in Hypo Real Estate.

The response moves the government closer to a controversial expropriation of JC Flowers’ holdings in the property lender, which Berlin is determined to take into full state control. The bank almost collapsed during the financial crisis and is being propped up with more than €100bn of state-backed refinancing guarantees.