Commerzbank plans buy-back of public debt

Commerzbank is to issue new equity and draw on reserves to repay about €14.3bn of state aid it received during the credit crunch to Berlin.

It plans to have repaid its total outstanding debt to Berlin, constituting a further €1.9bn, by 2014 at the latest.

To do so, the Frankfurt-based bank will increase capital by €8.25bn, while the German bank rescue fund Soffin will convert non-voting capital called ‘silent participations’ which it holds, into €2.75b of shares. The bank will also redeem silent participations of €3.27bn using excess capital it holds.

Martin Blessing, chief executive, said Commerzbank had returned to profit earlier than expected and was also proceeding with the integration of Dresdner Bank – the purchase that brought the bank low – “more quickly than planned”.

German institutions received guarantees worth up to €500bn from Berlin during the crisis, but question marks still hang over the strength of some banks.

They hold an aggregate €46.5bn of sovereign debt from beleaguered Greece, Ireland, Spain and Portugal, plus €91bn more exposure to the banking systems in those countries.

Lenders Norddeutsche Landesbank and Landesbank Hessen-Thueringen, among others which received public aid in the crisis, are trying to stop the European Banking Authority from excluding silent participations from being counted as part of core capital in the upcoming series of stress tests.

Bloomberg reported such capital represented over half the total capital at Landesbank Hessen-Thueringen at the end of 2010, while at Norddeutsche Landesbank (NordLB), it was 30.5% of total capital in September.

The Association of German Public Sector Banks has already argued silent participations should count towards banks’ core capital.

Bloomberg said EU regulators are expected to set the hurdle at 5% core Tier 1 capital under the most stressed scenario, compared to 6% last year.

David Walker

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