Commerzbank Seeks Debt Buyback to Increase Capital

Thursday, 13 Jan 2011 11:42 AM

 

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Germany's Commerzbank AG said Thursday that it plans a capital increase to buttress its financial strength, but the German government will keep its 25 percent stake.

Commerzbank said it plans a capital hike equivalent to as much as 10 percent, minus one share, of its current capital. That means issuing up to 118.1 million shares.

The bank didn't specify how much it expects to raise but said its core tier 1 capital — a key measure of financial strength — will increase.

The move comes at a time when the so-called Basel III rules are expected to raise the amount of money banks need to set aside as a buffer against potential problems.

"This transaction marks an important step in optimizing Commerzbank's capital structure," the bank said in a statement.

The management and supervisory boards are expected to finalize the size of the capital increase on Jan. 21, the company added. A syndicate of banks — Credit Suisse, Citigroup, Goldman Sachs and UBS — was to place the new shares with institutional investors beginning Thursday.

Commerzbank said it has an agreement with Credit Suisse Securities under which the latter can acquire hybrid-equity instruments issued by the German bank "at prices below par" and contribute them to Commerzbank in exchange for new shares.

Commerzbank took aid during the financial crisis from the German government, which now owns a 25 percent stake.

The company said the government's financial-sector rescue fund plans to keep 25 percent after the capital hike and part of its "silent participation" will be converted into shares.

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