Commerzbank AG’s Eurohypo unit must pay interest on profit certificates to a private-equity firm and a U.S. hedge fund after Germany’s top civil court ruled the lender was wrong to stop payments on the securities in 2009.
Germany’s Federal Court of Justice today backed rulings won by Crown Ocean Capital Ltd. and QVT Financial LP.
Eurohypo stopped payments on the securities in 2009 after recording a loss. The certificates were originally issued by Rheinhyp AG and Hypothekenbank in Essen AG, which later became part of Eurohypo. Commerzbank bought the real estate lender in 2005 for an estimated 5.9 billion euros ($7.6 billion). The unit lost 3.5 billion euros in 2011 and is being wound down.
“The terms of the profit certificates didn’t have a rule for what happened to them in a takeover, so they needed to be adjusted,” Presiding Judge Alfred Bergmann said. “Since there was a positive outlook at the time” of the takeover, Commerzbank “must continue to fully pay interest.”
Commerzbank won’t comment until it receives the court’s written judgment, Nils Happich, a spokesman for the Frankfurt-based bank, said in an e-mailed statement.
Shares of the bank fell 0.2 percent to 8 euros in Frankfurt trading.
Josef Broich, a lawyer for QVT, said while he also hasn’t seen the written judgment, the court press statement made it clear “the Federal Court of Justice fully followed the arguments we made from the beginning.”
Profit certificates are securities that entitle the holder to a portion of a company’s profits while obliging them to share in losses without giving them any ownership of the business. Commerzbank had a 2009 loss of about 4.5 billion euros, with Eurohypo’s deficit totaling 902 million euros.
The hearing today was followed by more than a dozen private investors who hold the securities. They are hoping today’s ruling will prompt Commerzbank to pay them now as well, said Malte Daniels, a Berlin-based investor and asset manager who also bought the securities.
“It would be desirable if Commerzbank would take these rulings as motive to return to a capital-market friendly treatment of its capital providers,” Daniels said.
Today’s cases are BGH, II ZR 2/12 and II ZR 83/12.