Aftermath of Part-Nationalization Berlin Wants Commerzbank to Kick-Start Stalled Lending

The German government's partial nationalization of Commerzbank reflects the severity of the financial crisis. Berlin wants to use Commerzbank to jump-start stalled bank lending to companies, but it's paying a high price to do so.

By SPIEGEL Staff


It's a proud building with a height of 259 meters -- 300 meters including the antenna --making it the highest skyscraper in Germany and the third-highest in Europe. It was designed by Sir Norman Foster, the star architect. This building exudes the ambition of a company that wants to display its wealth and its power, and that wants to play in the big league.

Commerzbank opted to take help from Berlin.
DPA

Commerzbank opted to take help from Berlin.

But things have gone wrong for Commerzbank. Its proud tower is about to become the tallest branch of the federal government since last week's announcement that it will be partially nationalized.

Berlin is taking a €10 billion stake in Commerzbank, an investment that will it direct influence in the business operations and structure of a major German commercial bank. The government will also become the guarantor of the planned merger between Commerzbank and Dresdner Bank, acquired by Commerzbank in a deal arranged last year.

The financial crisis has reached a new level. Until now, the government had administered its capital injections as cautiously and selflessly as it could in a bid to revive the ailing banking sector.

Now the maxim has changed. The Commerzbank deal has turned the government into the most important shareholder in Germany's second-largest private sector bank. Berlin will have two representatives on the supervisory board and its 25 percent stake gives it the power to block every major decision Commerzbank's management board takes in the future.

"I can only congratulate Herr Steinbrück," Chancellor Angela Merkel said in a speech to business leaders last Friday, referring to Finance Minister Peer Steinbrück. "At last the banking package is working."

That's a pretty euphoric interpretation of a rather sobering development. After all, Commerzbank has had to be rescued twice in the space of just a few months.

European bank stakes acquired by governments so far in the financial crisis.
DER SPIEGEL

European bank stakes acquired by governments so far in the financial crisis.

Markets Worried By Government's Move

That might explain why the deal got a muted response in the financial markets. Commerzbank's stock plummeted at the end of last week and rival banks grumbled about "competitive disadvantages in the credit business," while many people saw the government's stake purchase as a disturbing sign that the financial crisis is getting worse.

The last time the state bought a stake in Commerzbank was 80 years ago, in the summer of 1931, at the height of the global economic crisis. At the time the government wanted to demonstrate that it remained capable of taking action, and it's no different today.

The government wants to prove that its rescue package for the financial sector can effortlessly master even the biggest challenges. The message is that if the banks don't provide the economy with enough credit, the government will step in and find alternative ways to get credit flowing.

The government's stake purchase shows that nothing is impossible in this crisis now. Only half a year ago it had seemed inconceivable that a major German bank would be partially nationalized. And only recently, Steinbrück had declared that the government would under no circumstances exercise "strategic influence on the banking sector."

When Commerzbank first asked for government assistance last November, the government's financial market stabilization fund, known for short as Soffin, provided €8 billion without taking a stake in the bank.

But just before Christmas it became clear that that injection would not suffice. Dresdner Bank in particular had just finished a disastrous fourth quarter. It has so many bad securities on its books that government experts described the bank as "toxically charged." At the end of June the bank still had structured securities worth at least €31 billion. The subsequent writedowns narrowed its capital base to such an extent that the merger with Commerzbank was suddenly in danger.

Merger Was in Jeopardy

The government wanted to prevent the collapse of the merger at all costs because that would have caused fresh panic in an already nervous financial sector. In addition, the Allianz insurance group, which still owns Dresdner, would have been hit by billions of euros in losses.

Last Wednesday Commerzbank Chief Executive Martin Blessing met Finance Ministry deputy Jörg Asmussen, Economy Ministry deputy Walther Otremba and other members of Soffin's steering committee at the Berlin Finance Ministry for a final round of talks on the deal. The president of Germany's financial sector watchdog, Jochen Sanio, and Allianz Chief Executive Michael Diekmann were also present.

At 3:30 p.m. they agreed to provide Commerzbank with a fresh cash injection of €10 billion. According to Blessing, that money will make Commerzbank "even safer", but it's not an especially attractive deal for taxpayers. In return for a direct capital investment of €1.8 billion and a silent deposit totaling €16.4 billion, the state is merely getting a stake of 25 percent plus one share, even though Commerzbank's current market value is less than €3.6 billion.

The government doesn't just see the stake as a way to build trust in the new bank. It's also intended as a precautionary measure. "We want to protect our and the taxpayers' money," one finance ministry official said.

The government was worried that private speculators could buy up Commerzbank and plunder the state's investment of €18 billion -- with the government's blocking minority, that's no longer possible.

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