The World from Berlin 'Government Must Learn from Mistakes in Commerzbank Bailout'

Germany's Commerzbank announced on Wednesday that it was preparing to pay back a large portion of the 16 billion euros it received as part of a financial crisis bailout. Great news for everybody except German taxpayers, say commentators.
Germany's Commerzbank plans to pay back most of the aid money it received from Berlin.

Germany's Commerzbank plans to pay back most of the aid money it received from Berlin.

Foto: dapd

It would be too early to make the argument that the financial crisis has come to an end in Germany. Several state banks  -- including WestLB in Düsseldorf and Hypo Real Estate -- are still on public-coffer life support. And a clean bill of health is nowhere in sight.

But on Wednesday, the commercial lending giant Commerzbank announced that it was moving to repay €14.3 billion ($20.3 billion) of the €16.2 billion it received in taxpayer money in 2009, as the financial crisis was ravaging banks the world over. Commerzbank CEO Martin Blessing said on Wednesday that his bank plans to pay the sum back by this June and that the remaining €1.9 billion will be returned by 2014.

"We are keeping our promise of repaying the temporary assistance from the German government as quickly as possible," Blessing said in a statement posted on the company's website on Wednesday. "The taxpayer is also not to suffer any loss."

Avoiding Interest Payments

In return for the 2009 cash injection, Berlin received a 25 percent plus one share stake in a so-called "silent participation." The German government is to maintain that stake until all of the taxpayer money has been returned. Once the bank completes all of the moves announced on Wednesday, it will have a capital reserve ratio of 8.8 percent, easily complying with new Basel III regulations calling for a ratio of 7 percent. While those rules won't enter full effect until 2018, many European banks are already moving to increase their reserve ratios -- with a particular emphasis on so-called Tier 1 capital, widely seen as the best defense against financial market turbulence.

The sum now being paid back by Commerzbank represents almost half of the €29 billion Berlin pumped into the country's ailing banks. New shares are to account for €8.25 billion of the reserve increase.

Commerzbank's rapid payback allows the bank to avoid paying significant interest on the government loan it received. In both 2009 and 2010, the bank was able to show no profit, thus avoiding the €1.5 billion annual interest payments that would otherwise have been due. The bank's balance sheet is looking much better this year, but the early payback allows Commerzbank to avoid high interest payments for 2011 as well.

Another benefit of the rapid payback is that Commerzbank is no longer limited to paying its top managers €500,000 per year or less , as called for in the conditions for receiving state help.

German commentators on Thursday take a closer look at the Commerzbank announcement.

The Financial Times Deutschland writes:

"Martin Blessing has earned our respect. With Wednesday's announcement of a reserve increase, the head of Commerzbank has achieved that which many had not expected: If all goes as planned, the institution will all at once pay back a significant portion of the state money it received -- and will take a large step toward independence. That is good for Blessing, because it will put an end to the political debates over interest payments and board salaries."

"But taxpayers haven't come away smelling quite as good. For them, the Commerzbank deal only looks good at first glance. Certainly, some will be happy that Berlin is getting back its money at all.... It wasn't always a foregone conclusion.... But the celebratory tone in the Commerzbank Tower has overshadowed another message: The spirit of the conditions established for receiving state help has been violated -- and nobody seems particularly to mind."

The financial daily Handelsblatt writes:

"Congratulations Mr. Blessing! Condolences, dear taxpayer! The Commerzbank announcement shows what the government must improve upon the next time it steps in to save an institution."

"From the point of view of Commerzbank, the deal is particularly clever when one realizes just how little the bank had to pay for the state help it received -- and it is exactly that point which is frustrating from the point of view of the German taxpayer. For the more than €16 billion it received from the federal government, Commerzbank paid no interest in 2009 and 2010 because Berlin accepted a clause precluding interest payments in the event of losses as determined by German accounting rules. Without such a clause, Berlin would have received some €3 billion by the end of March."

"One can't blame Blessing for having negotiated such a clause for his bank and then for taking advantage of it. But the state must learn from the mistakes made in the Commerzbank bailout and do things better in the future. Should Berlin once again decide to save a bank -- one which got into trouble by taking over another bank in the middle of the financial crisis (eds. note: Commerzbank took over Dresdner Bank in January 2009) -- then it must do so with the best interests of German taxpayers in mind."

The center-right Frankfurter Allgemeine Zeitung writes:

"While in other countries, banks were able to quickly pay back the emergency aid they received from the state, Commerzbank looked crippled. As such, Wednesday's announcement is a coup made part in possible by the improving health of the bank's balance sheet. It shows that capital markets are prepared to entrust German banks with large amounts of capital ... including investors from abroad. In Germany, there wouldn't have been enough investors to finance the kind of reserve increase planned by Commerzbank. Germany's state-owned banks could learn a lesson from Commerzbank. They should now see raising money on the capital markets as a serious option."

Conservative daily Die Welt writes:

"Commerzbank is slowly becoming a truly private bank once again. That is important, because public participation in the banking business is never a recipe for lasting success. And German taxpayers can now hope that they will be repaid at least a part of the aid provided to German banks. But they likely won't get much more than what Commerzbank is planning to pay back. The bank is far from being the worst problem case taken on by the federal government. The bailout fund SOFFIN remains heavily involved in Hypo Real Estate and WestLB. In contrast to Commerzbank, the two institutions will never again be able to stand on their own two feet. The money which the state is using to prop them up as a way to ward off a collapse of the financial system can already be written off today."

-- Charles Hawley