Commerzbank AG, the German bank that got an 18.2 billion-euro ($23.5 billion) government bailout, surged the most in almost four years as it sold new shares to repay taxpayers and bolster capital.
The stock rose as much as 18 percent, the biggest gain since July 2009, and climbed 15 percent to 8 euros at 1:25 p.m, in Frankfurt. That pared losses this year to 25 percent compared with an increase of 10 percent for the 40-member Bloomberg Europe Banks and Financial Services Index.
Commerzbank is offering 2.5 billion euros of new shares from today until May 28 to make final debt repayments to the German state and insurer Allianz SE and to meet tighter capital rules. The plan and the recent decline of the share price prompted Bank of America Merrill Lynch to raise its recommendation on Commerzbank to buy and set a 12-month price estimate of 10 euros a share.
“This is an attractive opportunity,” BofA analyst Johan Ekblom wrote in an e-mailed report to clients. A re-rating of the stock by investors may “make Commerzbank one of the best-performing European bank stocks this summer,” he said.
The bank is offering shareholders 20 new shares for every 21 shares they own at 4.5 euros apiece in the capital increase. Meantime, Germany’s state-run rescue fund Soffin completed the placement of about 625 million euros of Commerzbank shares at 7 euros apiece as part of the bank’s plan to repay taxpayers, Soffin said in an e-mailed statement.
Soffin, which is participating fully in the capital increase, will get a remaining 1 billion euros in cash from Commerzbank as the company pays back the final 1.63 billion euros of the 16.4 billion euros in silent participations it borrowed in the bailout during 2008 and 2009. The debt is a form of non-voting capital.
Investors are now purchasing Commerzbank’s shares as recent declines don’t reflect the bank’s value and prospects, said Ronny Rehn, an analyst with Keefe, Bruyette & Woods Inc.
“The stock is looking much cheaper,” Rehn, who raised his recommendation on the shares to the equivalent of hold from sell today, said by telephone from London. “This is an indication that there will be enough demand for the bank’s share sale.”
The government, which owns 25 percent of Commerzbank, will have reduced its stake to about 17 percent following the capital increase, Soffin said.
Commerzbank is also repaying the 750 million euros it owes Allianz from the cash raised in the share sale. Allianz Chief Financial Officer Dieter Wemmer declined to say whether the Munich-based company, which has a 2.84 percent stake in Commerzbank, would take part in the capital increase on a conference call with reporters.
The bank’s common equity Tier 1 ratio under full Basel III rules, a key measure of financial strength, will increase to 8.4 percent from 7.5 percent after the share sale. The ratio is expected to rise to 9 percent by the end of next year, the company said in a statement yesterday.
While Commerzbank’s capital levels will still lag behind those of some of its competitors, “the near-term dilution risk is minimal” for shareholders, Ekblom said.
Three of 33 analysts recommend buying Commerzbank’s shares, according to data compiled by Bloomberg. The average price estimate for the stock is 7.90 euros.