FRANKFURT â€" Commerzbank said Wednesday that it would repay a taxpayer bailout and ask shareholders for more capital, moves that would reduce the German government influence over the bank but would 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 raised to bolster its capital reserves. Martin Blessing, the chief executive of Commerzbank, said the transaction “marks the beginning of the end of the Federal Republic’s engagement in Commerzbank.â€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 will 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 efforts 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 rates the German banking sector “negative.â€
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 to a profit of 316 million euros a year earlier.
Commerzbank said Wednesday that it would pay back the remaining 1.6 billion euros of the 16.4 billion-euro government bailout it received in 2008 and 2009. That sum does not include another 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 cquisition 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 being held on 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, bank are already under marke! t pressur! e to comply.
