German Bailout Likely to Be Over $400 Billion

WASHINGTON -- German Chancellor Angela Merkel heads to Paris to present Sunday to her colleagues from the euro zone a financial sector bailout plan for Germany that's expected to be more than half the size of what has been enacted in the U.S.

A person familiar with the situation told Dow Jones Newswires that the government is considering a total bailout plan of €300 billion to €400 billion ($402 billion to $536 billion), which includes state guarantees and the option to get a direct stake in banks. As part of this, the government is mulling recapitalizing financial institutions by injecting €50 billion to €100 billion in capital, the person who declined to be named said.

"These figures are currently being discussed but there is no final decision yet and everything is still in flow," the person said. The Cabinet is expected to debate the rescue plan on Monday.

The comments come after German Finance Minister Peer Steinbrueck and Bundesbank President Axel Weber told reporters following the group of seven leading nations' meeting in Washington that Germany will present a "far-reaching" rescue package before markets open Monday.

Speaking in France Saturday after a bilateral meeting with French President Nicolas Sarkozy, Chancellor Merkel said she wouldn't rule out support for banks who seek it, but that conditions would be attached.

"One cannot talk of nationalization," Ms. Merkel said at a press conference in Colombey-les-Deux-Eglises according to the Associated Press.

Germany, Europe's largest economy, will outline the plans to the leaders of the other 14 euro-zone countries, who will meet for an emergency summit in Paris Sunday to ensure a coherent approach in dealing with the current crisis that has led to massive sell-offs in stocks and has frozen credit markets. Mr. Steinbrueck has been tight-lipped about details of the plan, which he said he already outlined to the G-7 officials in Washington.

With European officials heading back across the Atlantic Saturday, market attention will be shifting to the euro zone as it has so far failed to come up with a common approach.

The U.S. Congress has enacted a $700 billion rescue package to bail out the ailing financial sector, the biggest government intervention in financial markets since the 1930s. The U.K. government Wednesday said it will invest in a number of U.K. banks in an effort to recapitalize the industry, end concerns about the viability of individual institutions and encourage banks to resume lending to consumers and businesses.

As part of the £400 billion ($682 billion) package, the U.K. government will boost banks' capital by buying preference shares of up to £50 billion, provide a £250 billion guarantee for short- and medium-term bonds issued by the banks, and provide additional liquidity of around £100 billion through the Bank of England's Special Liquidity Scheme.

The U.K's move to guarantee bonds has put pressure on other countries to act because it will put their banks at a disadvantage to U.K. banks.

Several European countries, including Spain and Italy, have also provided cash to bail out the ailing banking sector over the past days.

The German government has also been under pressure after it opposed an Europe-wide rescue fund for the banking sector proposed by the French, saying the banking market is too fragmented to respond to with a one-size-fits-all approach.

While Germany so far has focused on case-by-case bailouts for institutions hit hard by the credit squeeze and subprime crisis, such as IKB Deutsche Industriebank AG and mortgage financier Hypo Real Estate Holding AG, it's now changing gear and will present a master plan for its national sector.

Some German banks have called for a countrywide umbrella solution for German banks instead of rescuing individual banks.

"We will present to the partners of the euro zone what's crossing our mind in order to generate a coordinated behavior and prevent disparate developments in Europe," Mr. Steinbrueck told reporters Friday after the G7 meeting. "Under the headline of a cooperative procedure, each country will have search for and find problem-adequate responses."

Germany's largest banks are Deutsche Bank AG, Commerzbank AG and the banking unit of Allianz SE Dresdner Bank AG, which is in the process of being taken over by Commerzbank, and the German unit of Italy's UniCredit SpA's, HVB Group.

Write to Andrea Thomas at andrea.thomas@dowjones.com