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Commerzbank is first private German bank to ask for cash injection
2008-11-03
FRANKFURT - Commerzbank, the second-biggest German bank, took the plunge and said on Monday it would ask the government for 8.2 billion euros (10.5 billion dollars) in cash and 15 billion more in debt guarantees. Commerzbank also posted a third-quarter net loss of 285 million euros and an operating loss of 475 million euros. The international financial crisis cost the bank 1.1 billion euros in losses from market operations, the statement added. Shares in the bank nonetheless shot up in early Frankfurt trading, gaining 7.41 percent to 9.06 euros while the DAX index of German blue-chips showed a gain of 1.50 percent overall. At the close on Friday, Commerzbank shares traded for 8.43 euros, having lost more than two-thirds, or 67.44 percent, of their value since the beginning of the year. Commerzbank responded to pressure from German authorities for banks to apply for aid under a rescue package that includes up to 80 billion euros in capital injections and 400 billion in loan guarantees. The capital infusion will take the form of a "silent participation," which means Berlin will not become an active shareholder in Commerzbank, and the cash will go directly towards boosting the bank's so-called Tier1, or core capital. That means investors' holdings will not be diluted in Commerzbank, which can also use a capital increase as it is acquiring Dresdner Bank, the third biggest private German bank from the insurance group Allianz. "We have decided to make use of the package because this is good for the bank, its employees and its clients," Blessing said. "As of today there is not current need for any guarantees. Howver, they offer additional and attractive refinancing options, in case markets should deteriorate again." Commerzbank said it had increased loan loss provisions to 628 million euros from 414 million, a sign the bank expects more turbulence in the future. In accepting state aid, Commerzbank agreed to forego paying a dividend in 2009 and 2010 and its directors will see their salaries capped at 500,000 euros per year. Despite insistent calls from German authorities, the only other private bank to seek help is property specialist Hypo Real Estate, which has asked the state to guarantee HRE's reimbursement of loans from other banks for the next three years. Deutsche Bank boss Josef Ackermann told German television late on Sunday that the biggest private German bank was healthy enough to do without state aid contained in the Financial Markets Stabilization Fund approved on October 17. Blessing said Monday that "We have welcomed the German government's measures from the beginning. It is an important contribution to the stabilization of the financial market. As part of a broad consolidation of the banking sector, Commerzbank is to pay 9.8 billion euros for Dresdner Bank. The cash-and-stock deal is to take place in two stages and be completed no later than the end of 2009, pending approval by regulatory authorities. The combined bank would have estimated total assets of around 1.1 trillion euros but still trail Deutsche Bank, at 1.99 trillion euros.
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