August 7, 2020

DealBook: Commerzbank to Repay $20.4 Billion of German Bailout

Commerzbank said it would repay most of the aid it received from the German government in 2009 and sell new shares to investors as it seeks to strengthen its capital reserves and comply with new banking regulations.

The move comes as German banks face criticism that they have not done enough to deal with problems left over from the financial crisis and become self-supporting businesses again.

“We are keeping our promise of repaying the temporary assistance from the German government as quickly as possible,” Commerzbank’s chief executive, Martin Blessing, said in a statement. German taxpayers will not suffer any loss, he said.

Like Germany’s publicly owned landesbanks, Commerzbank, a commercial lender, has counted government aid known as “silent participations” as part of its capital reserves. New banking regulations will compel banks to phase out such funds as a component of the most durable form of capital buffer, requiring them to raise funds from other sources.

Commerzbank may also be addressing the risk that banks which depend too much on silent participations would have trouble passing an examination of European banks that regulators plan to conduct in June. The European Banking Authority has been considering whether to allow the state aid to count toward core capital for the purposes of the so-called stress tests.

The banking authority is expected to announce by the end of the week how it will treat silent participations, an issue that has been closely watched in Germany.

Representatives of landesbanks have complained that a narrower definition of capital would unfairly hold them to a regulatory standard that does not begin to take effect for several years.

In its statement, Commerzbank said it would repay 14.3 billion euros ($20.4 billion) of its 16.2 billion euros in government silent participations. The bank, based in Frankfurt, plans to raise 8.25 billion euros by selling new shares in an offering to be completed no later than June. In addition, the bank began selling notes on Wednesday that will convert to new shares in May.

The German government, however, will continue to hold veto power over Commerzbank’s decision-making. The government, which took a 25 percent stake as part of the bailout, will maintain that ownership share by converting some silent participations to stock. Once converted to ordinary shares, the funds would qualify as so-called core Tier 1 equity, considered the most durable form of capital buffer.

Once all the transactions are complete, Commerzbank’s core Tier 1 equity will be 8.8 percent of assets, the bank said. New regulations to take effect at the end of 2018 require a capital buffer of 7 percent, though banks considered too big to fail — a category that could include Commerzbank — might be required to hold additional reserves to protect them against market shocks.

Mr. Blessing expressed gratitude to the German government for supporting the bank in the financial crisis that followed the collapse of investment bank Lehman Brothers in 2008.

“The government reacted courageously and quickly following the Lehman collapse,” he said.

Article source: http://dealbook.nytimes.com/2011/04/06/commerzbank-to-repay-20-4-billion-of-german-bailout/?partner=rss&emc=rss

Speak Your Mind