The German government has agreed to take a 25-percent share in Commerzbank. The move signals the first time the government has taken a stake in a major private bank and comes as Commerzbank is set to buy Dresdner Bank.
The landmark move gives the government a say in the new Commerzbank-Dresdner unit
Commerzbank, Germany's second largest bank, is to be recapitalized again as the state takes a 25-percent-plus-one-share stake in return for 10 billion euros ($13.6 billion) in fresh funds.
The capital comes on top of the 8.2 billion euros that SoFFin, the state rescue fund for the banking sector, already granted Commerzbank in November. SoFFin will pay 6.0 euros per share.
According to a statement from Commerzbank, the German government "is clarifying all further details with the EU Commission."
Analysts say Commerzbank requires the additional cash as it moves to acquire another struggling bank, Dresdner Bank, from insurance giant Allianz at the end of January.
"If the government hadn't come on board, the Dresdner takeover probably wouldn't have happened," Frankfurt-based banking professor Martin Faust told the Berliner Zeitung. "And that would have had dramatic consequences for everyone involved."
Government will have seats on the board
The landmark move by the government to take a stake in a private bank will give it a veto right on board decisions of the new Commerzbank-Dresdner unit.
"We are taking 25 percent; of course we will join the supervisory board," Finance Ministry spokesman Torsten Albig told Reuters news agency. He added, however, that the ministry would not seek to influence the bank's operations.
Analysts say the German government's second cash injection signals support for the bank's rise to become a rival to Deutsche Bank.
The head of the Social Democratic Party, Franz Müntefering, defended the move and said it was not part of a nationalization scheme.
"The government is stepping in for a time, but at a sensible time in the near future, it will step back," he said.
Preparing for the storm
Blessing promised a stronger Commerzbank
According to the finance ministry, the move "sent a strong signal to a strong Commerzbank." The deal will increase the core capital ratio of the Commerzbank unit to 10 percent.
"We are weatherproofing our bank for an economically stormy environment," Commerzbank chief executive Martin Blessing was quoted as saying. "This will enable us to fulfill our responsibility to offer loans to the German economy and to ensure we will continue to be a reliable partner for our clients."
On the same day that the government stake was announced, Commerzbank launched a bond issue worth more than one billion euros, the first to be underpinned by state guarantees.
The Commerzbank takeover of Dresdner Bank from Allianz is expected to be completed by the end of the month. Under the acquisition, Allianz will boost Dresdner Bank's capital by taking over collateralized debt obligations with a nominal value of 2 billion euros at a purchase price of 1.1 billion euros.
The news of the government injection prompted Commerzbank shares to drop as much as 15 percent on Friday. Over the past year, the stock has fallen more than 80 percent.