Germany injects further €10bn into Commerzbank

THE GERMAN state has injected a further €10 billion into Commerzbank and has taken a 25 per cent stake to shore up the country’s second-largest lender and allow it to complete the take- over of Dresdner Bank, its ailing rival.

The capital increase comes two months after the bank received an €8.2 billion injection from the government’s financial sector bail-out fund.

It is also less than six weeks since Commerzbank renegotiated the terms of the deal with Allianz, the insurance giant that controls Dresdner.

The move underlines how the global economic and financial crisis continues to undermine the creditworthiness of large banks, even after far-reaching steps by governments to restore confidence.

Although the German government’s shareholding in Commerzbank will be only 25 per cent plus one share, yesterday’s move means the lender is in effect part-nationalised.

At yesterday’s closing share price, Commerzbank’s market value was just €3.8 billion – less than a quarter of the value of the government’s investment.

Of the new €10 billion injection, €8.2 billion is in the form of a “silent participation”, long-term bonds that are included in calculations of a bank’s capital but do not carry voting rights.

The bail-out fund will also buy 295 million new Commerzbank shares at €6 each. The bank’s stock fell to €5.25, down 84 cents, after reports of the planned capital injection.

Chief executive Martin Blessing said exceptional circumstances had demanded exceptional measures and “we are weather-proofing our bank for an economically stormy environment”.

With the government stake and Allianz holding a further 14 per cent, Commerzbank could drive through “cleanly” the Dresdner takeover, he added. – (Financial Times service)