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Commerzbank to be partially nationalised

Germany's second biggest private bank, Commerzbank, will be partially nationalised, it said on Thursday.

Published: 8 January 2009 18:21 CET

Commerzbank to be partially nationalised

Photo: DPA

After the bank receives €10 billion ($13.6 billion) in fresh capital from the German banking sector stabilisation fund SoFFin, the federal government will hold a stake of 25 percent plus one share in the bank.

“We are weatherproofing our bank for an economically stormy environment. This will enable us to fulfill our responsibility to offer loans to the German economy and to ensure we will continue to be a reliable partner for our clients,” said Martin Blessing, Chairman of the Commerzbank Board of Managing Directors.

The planned capital measures will increase the bank’s core capital ratio (Tier 1, HGB) to approximately 10 percent with the aim of allowing it to meet the substantially higher capital requirements needed in the wake of the global financial crisis.

The government already provided Commerzbank with €8.2 billion in cash in December, along with loan guarantees worth €15 billion, and on Thursday the bank was trying to raise €1 billion via a Berlin-backed bond issue.

The move comes as Commerzbank buys another troubled German bank, Dresdner Bank, from insurance giant Allianz, putting its finances under strain.

Munich-based insurer Allianz will now also recapitalise Dresdner Bank, which is in the process of being taken over by Commerzbank, with €1.45 billion by transferring collateralized debt obligations.

The Finance Ministry said that taking a stake in Commerzbank was not nationalisation because it was “a silent participation” that did not include voting rights, which would have given the government a management say. Rather, the state sought to send “a strong signal for a strong bank,” it said.

SoFFin would pay €6 per share and the German government “is clarifying all further details with the EU Commission,” Commerzbank said.

Shares in the bank lost 13.79 percent to €5.25 by the close on Thursday, while the DAX index of leading shares was off 1.17 percent overall.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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