Commerzbank to repay most public debt by June
Germany's second biggest bank, Commerzbank, unveiled plans Wednesday to raise billions of euros in equity to pay back most of the state aid it received in 2009 to withstand the global financial crisis.
Commerzbank said it would redeem 14.3 billion euros ($20.4 billion) in silent participations held by the government by June, and pay the rest by 2014 at the latest.
The government's silent participation means it does not hold voting rights normally associated with the stake.
"The time for major operatios has come," Commerzbank chairman Martin Blessing told reporters.
"It is in the interests of our shareholders because it will give us greater flexibility to grow," he added.
If all goes well, Commerzbank will only have to pay interest to the state this year on a residual silent participation worth 1.9 billion euros.
"The federal government welcomes the announced measures," a finance ministry spokesman told AFP.
The government has raised pressure on Commerzbank, in which it owns a stake of 25 percent plus one share, to begin paying back the state aid as soon as possible.
In February, Blessing had said he wanted to pay back "at least 10 percent" of the government aid this year, without providing details.
Once relieved of the interest payments to Berlin, Commerzbank plans to start paying a dividend to shareholders in 2012 and reinforce shareholder equity in line with future regulations known as Basel III, Blessing said.
The bank should pass upcoming European stress tests without a problem, he forecast.
Investors were cheered by the news, and Commerzbank shares shot up 3.62 percent to 5.80 euros in midday trading on the Frankfurt stock exchange, while the Dax index of leading stocks was 0.70 percent higher overall.
The bank will go to capital markets for 8.25 billion euros in fresh funds via the sale of conditional mandatory exchangeable notes to be converted into shares after the operation is approved at a bank meeting that has been moved up to May 6.
A second, classic capital increase would be held from late May.
Germany's Financial Market Stabilization Fund (SoFFin) will convert part of its silent participation into normal shares worth 2.75 billion euros.
That will allow the state to maintain the current level of its stake, which provides Berlin with a minority blocking position.
German insurance company Allianz, which owns close to 10 percent of Commerzbank, has already said it will take part in a capital increase, Blessing noted.
Another major shareholder, the Italian insurer Generali, has not indicated its intentions.
Finally, Commerzbank will pay back some 3.3 billion euros in state aid from its own funds, Blessing said.
The bank expects to make an operating profit this year that surpasses the 2010 level of 1.4 billion euros, after the first-quarter figure exceeded the bank's own forecast, he added.
Once all the operations have been completed, Commerzbank's Core Tier 1 capital, a buffer that protects against major losses, will probably amount to 8.8 percent, a bank statement said.
Moody's Investors Service said it believed the capital transaction "is ultimately credit-neutral for the group, and acknowledges that the large share issue will materially improve the group's quality of capital."
Commerzbank needed a public rescue after it committed to buying another German bank, Dresdner Bank, just before the global economic crisis worsened in September 2008.
© 2011 AFP