Commerzbank Raises EU776 Million in Hybrid Share Swap

Commerzbank AG, Germany’s second-biggest bank, will boost core Tier 1 capital by 776 million euros ($1.02 billion) in the first half after swapping hybrid capital instruments for new shares.

Commerzbank is exchanging about 361 million new shares for debt securities with an aggregate principal amount of 965 million euros, the Frankfurt-based lender said today. The swap, announced Feb. 23, will boost after-tax earnings by 87 million euros in the period.

Chief Executive Officer Martin Blessing, who has spent three years trying to free Commerzbank from the government aid needed to survive the 2008 financial crisis, is raising capital, reducing risk-weighted assets and costs and retaining earnings to meet European Banking Authority reserve requirements. The EBA ordered banks to raise capital by June 30 to restore confidence in the industry amid Europe’s sovereign debt crisis. Commerzbank fell as much as 4.4 percent in Frankfurt trading.

“Banks shares in general are under pressure today and there’s also the dilution in the case of Commerzbank,” said Andreas Plaesier, a Hamburg-based analyst at M.M. Warburg, which has a “hold” rating on the stock. The transaction “dilutes existing shareholders less than originally thought and still generates enough capital,” he said.

1.2 Billion Euros

The share sale raises Commerzbank’s subscribed capital by 7 percent. The lender said on Feb. 23 it would issue as many as 511 million new shares, or a maximum of 10 percent, for the offer that applied to as much as 3.16 billion euros in capital instruments.

Through 2017, the share-debt swap will boost core Tier 1 capital by 1.2 billion euros and pretax profit by 484 million euros, the bank said today. The new shares will be exchanged at a price of 1.9128 euros, it said today.

Commerzbank fell 6 cents, or 3.1 percent, to 1.90 euros by 9:45 a.m. in Frankfurt. The shares have gained 46 percent so far this year, helped by the announcement that the lender wouldn’t need state aid in January and the European Central Bank’s program of unlimited three-year loans.

Commerzbank was added today to CA Cheuvreux’s “all-sector top picks” in Europe, with analyst Cyril Meilland saying the stock is “dirt-cheap” and “the capital position is no longer an issue.”

Soffin Stake

Germany’s Soffin bank rescue fund will maintain its 25 percent stake in Commerzbank by converting a portion of its silent participation into 120 million shares. Silent participation is a form of non-voting capital used in Germany that is not accepted by the EBA as core Tier 1 capital.

In December, the EBA told European banks to raise 114.7 billion euros in capital by the end of June as part of measures introduced to respond to the euro area’s fiscal crisis. The regulator called for lenders to have core Tier 1 capital of at least 9 percent of their risk-weighted assets after accounting for writedowns on some European sovereign bonds.

Goldman Sachs Group Inc. managed the swap as the intermediary and will hand over the Commerzbank shares to hybrid debt holders participating in the exchange. The joint dealer managers were Citigroup Inc., HSBC Holdings Plc, Commerzbank and Goldman Sachs.

Separately, Credit Suisse Group AG, Switzerland’s second-biggest bank, announced a tender offer to repurchase 4 billion Swiss francs ($4.4 billion) in outstanding tier 1 and tier 2 securities as it prepares to replace them with capital instruments that satisfy new Swiss and Basel III rules.

Aaron Kirchfeld in Frankfurt at +49-69-92041-145 or

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