Creative Capital Commerzbank Seeks To Avoid Nationalization

Germany's second largest bank is looking at other options to increase its capital by 5.3 billion euros in order to avoid another government bailout. This week, the bank must submit plans to increase its capital to the European Banking Authority.

Commerzbank's headquarters in Frankfurt, Germany
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Commerzbank's headquarters in Frankfurt, Germany


German bank Commerzbank is exploring possible tricks it can use to avoid having to turn to the state for aid. Time is running out for the bank, too, with Jan. 20 set as the deadline for European banks to submit plans to the European Banking Authority for how they will improve their cash on hand in order to meet stringent new capital requirements aimed at ensuring the banks can survive if euro-zone countries go bankrupt. Among the measures being considered by Commerzbank are remunerating staff in part through company stock and reducing its lending to other businesses.

In order to prevent a government handout from Finance Minister Wolfgang Schäuble and further nationalization, Commerzbank, which is Germany's second largest private bank, needs to increase its capital level by €5.3 billion ($6.7 billion).

During the Lehman crisis, the bank had to be saved using taxpayer money, with the German state acquiring 25 percent of the bank. To avoid a repeat, Chief Executive Martin Blessing's bankers are calculating models that would enable the bank to prevent nationalization.

A tidy sum could be generated if, for example, employees would accept a variable part of their salary in the form of Commerzbank stock -- a proposal that is being discussed seriously by the board. In 2010, the company paid out €437 million in salaries, but that figure could be significantly lower this year.

German insurance giant Alliance, which is Commerzbank's largest shareholder, may also contribute. The company is reported to be considering converting a €750 million euro non-voting stake into Tier 1 capital that could help the bank prevent seeking government aid. However, the deal hasn't yet been finalized.

Could Less Lending Be Bad for Economy?

More controversially, the company plans to curb its lending operations. Internal calculations have shown that if the bank were to eliminate €30 billion in lending, it would require €2.7 billion less in capital that is used to back those loans. Currently, the company is not issuing any new loans for any small- to medium-sized businesses outside of Germany and Poland. Insiders have also conceded that the company is negotiating with large customers in Germany to persuade them to eliminate unused credit lines. The development is being viewed critically by the government in Berlin, where officials are concerned that the elimination of the extension of credit could weaken the economy.

"We saved the banks because, as lenders, they have an important function in the economy," said Gerhard Schick, the finance policy spokesman for Germany's Green Party. "The chairman's desire to avoid the embarrassment should not be given priority over economic policy goals."

Last month, government sources said that if the bank doesn't manage to raise sufficient capital on its own by next summer, Berlin will reactivate the Special Fund for Financial Market Stabilization (Soffin) and purchase additional shares in the bank. Sources told SPIEGEL at the time that the government would acquire a majority of the bank's shares in a capital increase.

dsl/SPIEGEL

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