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Commerzbank Said Next to Face Penalties in U.S. Probe

Commerzbank had 934 million euros ($1.2 billion) in provisions for legal proceedings and recourse claims at the end of 2013, according to its annual report. Photographer: Ralph Orlowski/Bloomberg

Commerzbank AG, Germany’s second-largest lender, will probably be the next bank to resolve alleged U.S. sanctions violations, a person with knowledge of the matter said.

The Frankfurt-based firm may incur penalties of at least $500 million as part of a deferred-prosecution agreement with authorities as soon as summer in the U.S., the person said, asking not to be identified because the talks are confidential. Such agreements spare companies a felony conviction.

The probe is part of a U.S. crackdown on financial institutions for handling funds linked to blacklisted nations that led to a record $8.97 billion fine against BNP Paribas SA. France’s Credit Agricole SA and Societe Generale SA, Germany’s Deutsche Bank AG and Italy’s UniCredit SpA are among other lenders being investigated by U.S. authorities.

An amount of more than $500 million “will almost certainly have an impact on the P&L,” said Dirk Becker, an analyst at Kepler Cheuvreux in Frankfurt, referring to the lender’s profit and loss account.

Commerzbank dropped as much as 4.1 percent in Frankfurt trading, and was 3.7 percent lower at 11.07 euros by 12:48 p.m. The shares have declined 5.5 percent this year.

Margarita Thiel, a spokeswoman for the bank in Frankfurt, declined to comment when contacted by phone today. The New York Times reported the settlement talks yesterday.

Legal Provisions

The Manhattan District Attorney’s office is working with the Justice Department, New York’s banking regulator and the Federal Reserve on the Commerzbank investigation, according to the person. Preet Bharara, the prosecutor in Manhattan who worked on the BNP Paribas probe, is not involved in the case, suggesting it will be filed by the U.S. attorney in the District of Columbia, the person said.

Commerzbank had 934 million euros ($1.2 billion) in provisions for legal proceedings and recourse claims at the end of 2013, according to its annual report. The bank doesn’t provide details for individual cases. U.S. authorities are investigating whether it breached rules regarding Iran, Sudan, North Korea, Myanmar and Cuba, Commerzbank said in the report.

In 2011, Commerzbank agreed to pay $175,500 to settle apparent violations of Cuban asset control regulations that occurred in September 2005, according to a statement on the U.S. Treasury’s website. The amount of the settlement reflected that Commerzbank cooperated with authorities during the investigation, according to the statement. Thiel, the bank’s spokeswoman, declined to comment on the previous fine.

U.S. Fines

The U.S. has brought at least 22 cases against financial firms since 2009 for doing business or handling funds linked to sanctioned countries, according to announcements on government websites.

Last week’s $8.97 billion fine against BNP dwarfs the combined $4.9 billion levied against 21 other banks since U.S. President Barack Obama took office. Most of those cases targeted overseas banks, with less than $90 million in fines imposed on U.S. firms. In 2011, New York-based JPMorgan Chase & Co. paid $88.3 million to settle allegations over transactions involving Cuba, Iran and Sudan.

The BNP fine can’t be used as a benchmark for further cases, said Christian Hamann, an analyst at Hamburger Sparkasse said by telephone. For those banks that weren’t involved in large-scale violations, “we should expect to see fines on a much smaller scale,” he said.

Government Stake

Germany’s second-largest bank handed over a 25 percent stake to the government in 2009 in return for an 18.2 billion-euro bailout. The German federal government still has a 17 percent holding in Commerzbank and would have to sell its remaining 193.5 million shares at about 25.90 euros each, or more than twice the current stock price, to break even, data compiled by Bloomberg show.

Commerzbank completed a fifth capital increase in four years in May 2013 to help repay the government and bolster capital. A fine of $500 million, on its own, wouldn’t require Commerzbank to raise more capital, said Neil Smith, an analyst at Bankhaus Lampe in Dusseldorf.

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