FRANKFURT - GERMANY'S second biggest bank, Commerzbank is to be recapitalised again, with the state taking 25 per cent plus one share in return for 10 billion euros (S$20.11 billion) in fresh funds.

'The federal government will hold a stake of 25 per cent plus one share in the new Commerzbank,' it said in a statement on Thursday, with the money coming from the German banking sector stabilisation fund SoFFin.

The government provided Commerzbank with 8.2 billion euros in cash in December, along with loan guarantees worth 15 billion euros, and on Thursday the bank was trying to raise one billion euros via a Berlin-backed bond issue.

The move came as Commerzbank buys another troubled German bank, Dresdner Bank, from insurance giant Allianz, putting its finances under strain.

'Against the background of the intensified financial crisis, the new bank will thus be enabled to meet the substantially higher capital requirements for banks,' the statement said.

The takeover of Dresdner Bank from insurance giant Allianz is expected to be completed in coming days.

The finance ministry said that taking a stake in Commerzbank was not nationalisation because it was 'a silent participation' that did not include voting rights, which would have given the government a management say.

Rather, the state sought to send 'a strong signal for a strong bank', it said.

SoFFin would pay 6.0 euros per share and the German government 'is clarifying all further details with the EU Commission,' the Commerzbank statement said.

Shares in the bank lost 13.79 per cent to 5.25 euros by the close on Thursday however, while the DAX index of leading shares was off 1.17 per cent overall.

Allianz shares were 5.43 per cent lower at 66.67 euros.

'We are weatherproofing our bank for an economically stormy environment,' Dow Jones Newswires quoted Commerzbank chief executive Martin Blessing as saying.

'This will enable us to fulfill our responsibility to offer loans to the German economy and to ensure we will continue to be a reliable partner for our clients.

With the deal, the core capital adequacy ratio of the new Commerzbank would be increased to around 10 percent, the statement said, a robust level for European banks.

Earlier in the day, Commerzbank had launched a bond issue worth more than one billion euros, the first to be underpinned by state guarantees.

'The issue aims to obtain more than one billion euros,' a bank spokesman said after a Commerzbank statement announced the operation.

State guarantees for the bonds should have allowed Commerzbank to obtain a better rating from international agencies and thus raise its credibility in the eyes of investors.

Details of the response to the bond issue were not immediately available.

Banks have begun to tap the bond market because interbank lending is still sluggish owing to fears over the creditworthiness of those which seek to borrow funds. -- AFP