€8.2bn bailout injection for Commerzbank

GERMANY'S SECOND-largest bank, Commerzbank, is to boost its capital with an immediate €8.2 billion injection from the government's bailout fund.

It is the first time Berlin has agreed to inject cash into one of the country's banks since the fund was announced. Commerzbank may also draw on state guarantees for €15 billion of debt issuance.

It means Commerzbank will not pay any dividends in 2009 or 2010. Shares rose just under 5 per cent to €8.85 in Frankfurt in a sign the market welcomed the bank's decision to shore up its balance sheet.

With Deutsche Bank ruling out the need for government capital, Commerzbank may be the biggest company to use the bailout, which has made up to €500 billion available in the form of capital, liquidity guarantees and the potential purchase of impaired assets.

Commerzbank chief executive Martin Blessing said the decision "reflects the sharp rise in capital requirements for banks demanded by supervisory authorities, rating agencies and the capital markets in the wake of the financial crisis".

Commerzbank had considered talking to institutional investors, he said, but the only available investors would have been foreign state-owned sovereign wealth funds. The management decided to look for "domestic" support.

The injection will be made in two tranches. For the first, Commerzbank will pay annual interest of 8.5 per cent. For the second, the fund will charge 5.5 per cent.

Commerzbank's move came as it announced a net loss of €285 million in the third quarter.

Meanwhile, HSH Nordbank, a public sector Landesbanken, said yesterday it would seek up to €30 billion in debt guarantees. - ( Financial Times service)