July 5, 2022

DealBook: Commerzbank to Raise Capital and Repay Taxpayer Money

The Frankfurt headquarters of Commerzbank, Germany's second-largest lender.Michael Probst/Associated PressThe Frankfurt headquarters of Commerzbank, Germany’s second-largest lender.

FRANKFURT – Commerzbank said on Wednesday that it would repay a taxpayer bailout and ask shareholders for more capital, moves that would reduce the German government’s influence over the bank but also dilute current shareholders.

Commerzbank, Germany’s second-largest bank after Deutsche Bank, said it would raise 2.5 billion euros ($3.3 billion) by selling new shares to existing shareholders. The issuance of new shares will reduce the German government’s stake in the bank to less than 20 percent, from 25 percent. As a result, the government would no longer have the right to veto management decisions.

The bank said it would use the money to bolster its capital reserves. Martin Blessing, the chief executive of Commerzbank, said the transaction signaled “the beginning of the end of the Federal Republic’s engagement in Commerzbank.” He said Commerzbank would save on interest by repaying its government loans earlier, and would be able to resume paying shareholder dividends sooner than expected.

Shareholders were disappointed, however, because the new shares would dilute the value of existing equity. Commerzbank shares fell more than 9 percent in Frankfurt trading on a day when German stock prices were otherwise flat.

The transaction is the latest effort by Commerzbank, and European banks in general, to move back to a semblance of normality after the turmoil of the last five years. While Germany has a reputation as an industrial powerhouse aloof from the financial crisis, almost all of its large banks are struggling and many would be bankrupt without public support. Moody’s has a negative rating on the German banking sector.

German and European banks still have a long way to go before the financial system can be considered healthy. Many banks remain dependent on the European Central Bank for cash, and credit remains scarce in much of the euro zone. Many banks are barely profitable or not at all. Commerzbank reported a loss of 716 million euros in the fourth quarter of 2012, compared with a profit of 316 million euros in the period a year earlier.

Commerzbank said it would pay back the remaining 1.6 billion euros of the 16.4 billion euros it received from the government in 2008 and 2009. That sum does not include an additional 3.7 billion euros in aid that the German government provided to the bank by buying its shares.

Commerzbank will also repay 750 million euros to the German insurer Allianz. The loan, a so-called silent participation, grew out of Commerzbank’s acquisition of Dresdner Bank from Allianz in 2008.

The bank said it would determine the number of new shares to be issued and the price in mid-May. Before that, Commerzbank will also consolidate existing shares, with one new share equaling 10 old shares. Deutsche Bank, Citigroup and HSBC will serve as underwriters.

Shareholders must approve the capital increase at the annual meeting, which is scheduled for April 19, about a month earlier than planned.

Commerzbank will use the cash raised to meet new regulations, known as Basel III, that require banks to increase the amount of capital they hold in reserve. Although the rules do not take full effect until 2019, banks are already under market pressure to comply.

Article source: http://dealbook.nytimes.com/2013/03/13/commerzbank-to-raise-more-capital-and-repay-taxpayer-money/?partner=rss&emc=rss

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