Expatica news

EU approves 10-bln-euros state aid for Commerzbank

Brussels — The European Commission approved on Thursday German plans to pump a fresh EUR 10 billion (USD 13.3 billion) into Commerzbank after the group promised to sell some choice, but risky businesses.

Berlin has grown increasingly impatient with Brussels on approving the deal, concerned that foot-dragging would endanger the health of what is the second-biggest bank in Europe’s biggest economy.

The commission has insisted that the plans for the new injection of capital, which comes after a first infusion of eight billion euros, should ensure the bank’s long-term health while not giving it an advantage over rivals.

"The commission is satisfied that the plan will guarantee the fundamental soundness of Commerzbank, and that sufficient measures are taken to mitigate distortions of competition," EU Competition Commissioner Neelie Kroes told journalists.

However, the commission only gave its approval after Commerzbank agreed to shrink its EUR 1.1 trillion balance sheet by about 45 percent through asset sales.

In particular, it will have to sell its Eurohypo unit, a major European player in the real estate and public finance business.

It will also have to part with its investment banking operations in order to focus on its more stable retail and corporate banking business, Kroes said.

The bank will also be banned for three years from buying other financial institutions that it competes with and it will not be allowed to do business, including taking deposits, on more favourable terms than rivals.

The German government now holds a stake of 25 percent plus one share in Commerzbank as a result of the capital injections.

Commerzbank has suffered from the global financial crisis and is striving to integrate Dresdner Bank which Commerzbank bought from the insurance group Allianz for EUR 4.7 billion.