Commerzbank to repay public debt by June
Germany's second biggest bank, Commerzbank, unveiled plans Wednesday to raise billions of euros in to pay back most of the state aid it received in 2009 during the global financial crisis.
Commerzbank said that by June, it would pay back 14.3 billion euros ($20.4 billion) out of a total 16.2 billion euros which the government put into the bank to help it survive the crisis.
The remainder of the funds, held in a 'silent participation,' meaning the shares it owned did not give the government a say in management, will be repaid by 2014 at the latest.
"The time for major operations 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 the residual holding of 1.9 billion euros.
"The federal government has always aimed to limit the duration" of its aid, finance ministry spokesman Steffen Seibert noted.
The government has recently raised the pressure on Commerzbank to pay back the state aid as soon as possible.
In February, Blessing had said he wanted to pay back "at least 10 percent" this year, without providing details.
Once relieved of interest payments to Berlin, Commerzbank plans to start paying a dividend to shareholders in 2012 and bolster its capital in line with new tighter global regulations known as Basel III, Blessing said.
Investors were cheered by the news and Commerzbank shares shot up 4.25 percent to 5.84 euros in afternoon trading on the Frankfurt stock exchange, while the Dax index of leading stocks was 0.63 percent higher overall.
The bank will go to the 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 scheduled for May 6.
Whatever cannot be raised from the markets will be the covered in a second, traditional capital increase through shareholders to be held from late May.
Germany's Financial Market Stabilization Fund (SoFFin) will also convert part of its current silent participation into normal shares worth 2.75 billion euros which ensures that it retains a 25 percent plus one share stake which gives Berlin a minority blocking position.
Finally, Commerzbank will pay back some 3.3 billion euros in state aid from its own funds, Blessing said.
The bank expects an operating profit this year topping 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 come 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."
Several other major European banks are also set to raise funds on the capital markets to bring themselves into line with the Basel III regulations, which are designed to limit the need for government rescues in the future.
© 2011 AFP