FRANKFURT - COMMERZBANK, the second-biggest German bank, will tap a government rescue fund for 8.2 billion euros (S$15.5 billion) in cash and 15 billion in debt guarantees, it said on Monday, a move welcomed the finance ministry.
Commerzbank, which also posted a third-quarter net loss of 285 million euros and an operating loss of 475 million euros, said the cash would boost its core capital and not dilute investors' shareholdings.
A finance ministry spokesman called the decision 'a very responsible approach' which 'showed that the facility established by the government is efficient and accepted' by a banking sector that appeared reticent about asking for aid.
Commerzbank responded to pressure from German authorities for banks to take advantage of a rescue package that includes up to 80 billion euros in capital injections and 400 billion in loan guarantees.
On Saturday, Chancellor Angela Merkel had pushed the package again, saying it would help banks ensure they could continue with their primary functions of 'lending and managing savings'.
But the government has set several conditions on the funds that make private banks in particular less inclined to come to German authorities hat in hand.
The capital infusion will take the form of a 'silent participation', which means Berlin will not become an active shareholder in Commerzbank, and the cash will go directly towards boosting the bank's so-called Tier1, or core capital.
Commerzbank can use a capital increase as it is acquires Dresdner Bank, the third biggest private German bank from insurance group Allianz.
'We have decided to make use of the package because this is good for the bank, its employees and its clients,' said Martin Blessing, Commerzbank's chief executive.
'As of today there is not current need for any guarantees. Howver, they offer additional and attractive refinancing options, in case markets should deteriorate again.'
He stressed during a telephone news conference that the bank had raised its Tier1 ratio to between seven-nine percent, slightly higher than its level a year ago.
But Commerzbank also said it had increased loan loss provisions to 628 million euros from 414 million, a sign the bank expects more turbulence in the future.
In accepting state aid, Commerzbank agreed to forego paying a dividend in 2009 and 2010 and its directors will see their salaries capped at 500,000 euros per year and will not receive bonuses this year or next.
Mr Blessing has been receiving a salary of around 760,000 euros.
Despite insistent calls from German authorities, the only other private bank to seek help is property specialist Hypo Real Estate, which asked the state for 15 billion euros in guarantees for HRE loans from other banks.
Regional state-owned bank BayernLB has also sought 5.4 billion euros under the programme.
But Deutsche Bank boss Josef Ackermann told German television late on Sunday that the biggest private German bank was healthy enough to do without state aid contained in the Financial Markets Stabilization Fund approved on October 17.
Merck Finck analyst Konrad Becker told AFP: 'This is a rescue plan. Those who call upon it will do so because they have no other choice and will not be happy about it.' As part of a broad consolidation of the banking sector meanwhile, Commerzbank is to pay 9.8 billion euros for Dresdner Bank.
The deal is to be completed no later than the end of 2009, with the combined bank having estimated total assets of around 1.1 trillion euros.
Shares in the bank rose in midday Frankfurt trading, gaining 1.54 per cent to 8.56 euros while the DAX index of German blue-chips showed a gain of 0.65 per cent overall.
They have lost more than two-thirds of their value since the beginning of the year. -- AFP
