Commerzbank Plans to Raise $1.5 Billion to Boost Capital

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Commerzbank AG Chief Executive Officer Martin Blessing
Commerzbank AG Chief Executive Officer Martin Blessing is adding to the bank’s capital buffers after penalties of $1.45 billion to settle multiple U.S. investigations. Photographer: Martin Leissl/Bloomberg

Commerzbank AG, Germany’s second-biggest bank, plans to sell as much as 1.4 billion euros ($1.5 billion) of shares in an accelerated offering to boost capital.

The sale will probably increase its common equity Tier 1 ratio, a measure of financial strength, to more than 10 percent on a pro-forma basis as of the end of March, the bank said in a statement late Monday. The shares fell as much as 5.3 percent, the biggest decline since October.

“It’s a start, but it by no means lets them off the hook,” said Nick Anderson, an analyst at Berenberg Bank in London with a sell recommendation on the stock. “Ten percent is the start line for banks today, but clearly the direction of travel is upwards with many of the better banks heading towards 11 percent.”

Chief Executive Officer Martin Blessing, 51, is adding to the bank’s capital buffers after penalties of $1.45 billion to settle multiple U.S. investigations. The share sale is the sixth time that the Frankfurt-based lender has increased capital since receiving an 18.2 billion-euro bailout in 2009 from the German government. Germany won’t participate in the share offering, lowering its stake to 15.6 percent from about 17 percent, according to a Finance Ministry spokeswoman.

Commerzbank fell 4.7 percent to 12.31 euros by 9:19 a.m. in Frankfurt trading, valuing the bank at 14 billion euros.

After taking a legal charge related to a settlement of the U.S. probes, the capital ratio fell to 9.3 percent at the end of

2014.

‘Bottom End’

After the share sale, capital should now be “back in the range of European peers albeit still towards the bottom end of those we would regard as benchmarks,” analysts at UBS Group AG led by Matteo Ramenghi said in a note to clients. They said they expect “capital generation in the rest of the year taking CET1 ratio towards 10.5 percent, in a more comfortable territory.”

Net profit increased to 366 million euros in the first quarter, up from 200 million euros a year earlier, the company said on Monday.

The bank is expanding lending to German consumers and companies while cutting thousands of jobs to boost earnings. Operating profit more than doubled to 685 million euros in the first quarter. The bank set aside 158 million euros to cover possible loan defaults, less than the 238 million euros it had put aside a year ago.

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