Germany partially nationalizes second-largest bank

| 8 January 2009 11:51

This news of German goverment capital infusions at Commerzbank comes from the Frankfurter Allgemeine Zeitung in Germany.  You will recall that Commerzbank was the winner in the bid to buy Dresdner Bank just a few months ago. However, this merger cannt proceed without a capital infusion from the government.

I have provided a translation of the key details of the news story below:

Commerzbank needs an additional capital injection from the Special Fund for financial stabilization (Soffin). As a result, the federal government will join the capital base of Germany’s second largest commercial bank with a 25.1 percent stake. After the 8.2 billion euros it received in mid-December, the bank has agreed to a further 10 billion euro capital of assistance from the bank rescue fund of the Federal Government. That is the maximum amount that Soffin may give to a single bank. Commerzbank will reach a core capital ratio of 10 percent with the new funds. Without this government equity injection, the imminent takeover of Dresdner Bank is obviously not possible for Commerzbank.

I have no further comments on this story at this time except to say that this injection demonstrates the present fragility of the German banking system. However, the original article does also mention that the news was not cheered in the German stock markets.

Source
Commerzbank wird teilverstaatlicht – FAZ.net

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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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