Thursday January 8, 07:10 PM
Germany partially nationalises Commerzbank with 25 pct stake
By Etienne Balmer
FRANKFURT (AFP) - Germany's second biggest bank, Commerzbank (Xetra: 803200 - news) , will be partially nationalised, with the state taking just over 25 percent in exchange for a 10-billion-euro (13.6-billion-dollar) capital injection.
After German banking sector stabilisation fund SoFFin injects the funds, "the federal government will hold a stake of 25 percent plus one share in the new Commerzbank," a statement said.
The government had already provided Commerzbank with 8.2 billion euros in cash in December, along with loan guarantees worth 15 billion euros.
On Thursday, the bank sought to raise another five billion euros via a state-backed bond issue.
"We are weatherproofing our bank for an economically stormy environment," Commerzbank chief executive Martin Blessing said in a statement.
"This will enable us to fulfill our responsibility to offer loans to the German economy and to ensure we will continue to be a reliable partner for our clients."
The government's move came as Commerzbank buys another troubled German bank, Dresdner Bank, from insurance giant Allianz in one of the most important German banking mergers ever, a deal that has put Commerzbank's finances under strain.
"Against the background of the intensified financial crisis, the new bank will thus be enabled to meet the substantially higher capital requirements for banks," a Commerzbank statement said.
The takeover of Dresdner Bank is expected to be completed in the coming days.
The finance ministry said that taking a stake in Commerzbank was not nationalisation because it was "a silent participation" that did not include voting rights, which would have given the government a management say.
Allianz, which had expected to hold a stake of 18 percent in Commerzbank following the sale of Dresdner Bank, said Thursday that it would own 14 percent of the new entity, making it the second biggest shareholder after the state.
The German government "is clarifying all further details with the EU Commission," the Commerzbank statement said.
With the deal, the core capital adequacy ratio of the new Commerzbank, the level of cash reserves that underpins lending, would increase to around 10 percent of the bank's total assets, the statement said, a robust level for European banks.
But shares in Commerzbank lost 13.79 percent to 5.25 euros by the close on Thursday, while the DAX index (Xetra: news) of leading shares was off 1.17 percent overall.
Allianz shares were 5.43 percent lower at 66.67 euros.
The idea of a new major capital injection by the state "does not please investors," Merck Finck analyst Konrad Becker said, because "they will have to pay back these loans, and dearly."
The interest rate on the 8.2-billion-euro cash injection in December was raised by the European Commission to 9.0 percent.
Earlier in the day, Commerzbank had launched a bond issue worth five billion euros, the first to be underpinned by state guarantees.
State guarantees for the bonds should have allowed Commerzbank to obtain a better rating from international agencies and thus raise its credibility in the eyes of investors.
Details of the response to the bond issue were not immediately available, but Becker said it had been well-received.
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