Commerzbank Seeks $3.25 Billion Via Rights Offer

Commerzbank AG (CBK), Germany’s second-biggest bank, is seeking 2.5 billion euros ($3.25 billion) in the fifth capital increase in four years to repay debt from a government rescue. The shares fell to a record low.

The company is offering investors the right to buy 20 new shares for every 21 they hold at 4.5 euros apiece, equal to a 55 percent discount to yesterday’s share price. The stock will be offered from tomorrow until May 28, the Frankfurt-based bank said on its website.

Commerzbank, wracked by financial troubles including soured lending to shipping companies, gave the government a 25 percent stake in 2009 in return for an 18.2 billion-euro bailout and is cutting staff and selling assets to erase losses. The bank’s shares have declined 94 percent since September 2008, the most among financial companies in Europe outside Ireland and Greece.

“It will be a challenge to get this done without having a drastic impact on the share price,” Christian Hamann, an analyst with Hamburger Sparkasse who recommends investors sell the stock, said by phone from Hamburg, Germany. “It looks like a big discount.”

Commerzbank fell 6.3 percent to 9.312 euros at the close of trading in Frankfurt, a record low and the biggest decline in two months. The company has dropped 35 percent this year, the biggest loss in the 40-member Bloomberg Europe Banks and Financial Services Index, which rose 8.9 percent in the period.

Photographer: Ralph Orlowski/Bloomberg

The headquarters of Commerzbank AG, center, stands at dusk in Frankfurt. Close

The headquarters of Commerzbank AG, center, stands at dusk in Frankfurt.

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Photographer: Ralph Orlowski/Bloomberg

The headquarters of Commerzbank AG, center, stands at dusk in Frankfurt.

State Aid

Chief Executive Officer Martin Blessing, 49, will use the cash raised in the rights offer to pay back a remaining 1.6 billion euros of 16.4 billion euros of so-called silent participations, a form of non-voting capital, that the bank owes the government and 750 million euros it owes to insurer Allianz SE. (ALV) The government’s stake will probably fall to less than 20 percent under the plan, the lender said.

“The transaction marks the beginning of the federal government’s exit from Commerzbank,” the company said. “The capital structure of Commerzbank and its future ability to pay dividends should improve significantly.”

Soffin, Germany’s state-owned bank rescue fund, is selling about 625 million euros of stock, it said in an e-mailed statement today. The shares are being offered today at a guidance price of 6.3 euros apiece to market, according to a term sheet obtained by Bloomberg News.

The government expects the transaction to be completed tomorrow and will receive the remainder of the 1.6 billion euros in cash from Commerzbank, Soffin said.

Selling Loans

Commerzbank is in “intensive” talks to sell the majority of its 5.7 billion-euro portfolio of U.K. commercial real estate loans. The bank didn’t identify the potential buyers in a statement on its website today.

The company is in negotiations to sell the debt to Wells Fargo & Co. (WFC) and Lone Star Funds, three people with knowledge of the matter said last month.

Angry shareholders criticized Blessing at an annual general meeting in Frankfurt last month, saying wrong decisions at the bank meant that their investments had all but evaporated. Several called on the management to resign.

The rights offering will increase the common equity Tier 1 ratio under full Basel III rules to 8.4 percent from 7.5 percent, Commerzbank said. The ratio, a key measure of financial strength, is expected to increase to 9 percent by the end of next year, it said.

“The bank’s management has realized that they need to sell shares as they can’t generate enough profit to boost capital reserves,” Michael Seufert, an analyst at Norddeutsche Landesbank with a hold recommendation on Commerzbank, said by telephone from Hanover today.

Commerzbank used the 5.3 billion euros it raised in a previous stock offering in June 2011 to repay government aid.

In April, the bank reduced the number of shares to 583 million from 5.83 billion in a reverse share split as it prepared for the rights offer, underwritten by book runners Deutsche Bank AG, Citigroup Inc. and HSBC Holdings Plc.

To contact the reporters on this story: Mark Bentley in Frankfurt at mbentley3@bloomberg.net; Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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