Frankfurt: Commerzbank shares plunged Wednesday after Germany’s second-largest bank said it would carry out a 2.5-billion-euro ($3.3-billion) capital hike to pay back state bailouts received during the 2008-2009 financial crisis.
“Commerzbank is planning an early repayment in full” of about 1.6 billion euros in so-called “silent participations” from the German bank bailout fund SoFFin and a further 750 million euros from insurance giant Allianz, the bank said in a statement.
Silent participations are a form of debt under which creditors agree to forego voting rights in the company.
In order to raise the funds needed for repayment, Commerzbank had decided to undertake a capital increase, which it would ask shareholders to approve at the annual general meeting of Commerzbank, originally set for May 22 but now being brought forward to April 19.
SoFFin will participate in the increase, but instead of investing new capital, it will contribute some 625 million euros worth of shares.
That means that once the operation has been completed, SoFFin’s shareholding in Commerzbank would decrease from 25 percent plus one share to below 20 percent, the bank said.
The move is expected to beef up Commerzbank’s capital resources, with the key Core Tier 1 ratio — a measure of a bank’s financial strength — rising to 8.6 percent from 7.6 percent.
“The improvement of our capital resources has the highest priority for us,” said chief financial officer Stephan Engels.
“At the same time we are enhancing Commerzbank’s ability to pay a dividend in future,” Engels said.
“With the resulting reduction of debt servicing costs and the removal of the obligation to repay the silent participations of SoFFin and Allianz, dividend payments may be possible at an earlier date in the future,” he explained.
The last time Commerzbank paid a dividend was in 2007.
In 2008 and 2009, the state invested around 16.4 billion euros in Commerzbank as it struggled to integrate the distressed Dresdner Bank.
Commerzbank has already repaid most of the money and “with the announced repayment of the remaining 1.6 billion euros, the silent participations of the Federal Republic will be repaid in full,” the bank said.
“With the complete repayment of the silent participations of SoFFin we are repaying ahead of schedule all components of the state support over which we have influence,” said chief executive Martin Blessing.
“The support of politicians and the taxpayer was very important for us during the financial crisis. For us the repayment … marks the beginning of the end of the Federal Republic’s engagement in Commerzbank,” Blessing said.
On the Frankfurt stock exchange, Commerzbank shares were the biggest losers, however, as investors fretted about the dilutionary effects of the capital increase.
In late afternoon trading, the shares were showing a loss of more than 10 percent while the overall blue-chip DAX 30 index was up 0.02 percent.