Three major German banks today confirmed that they will avail themselves of the Financial Markets Stabilisation Fund established last month by the German government. Commerzbank AG announced it had reached an agreement with the German government to receive a direct injection of capital of €8.2 billion in exchange for nonvoting stock. In addition, Commerzbank will receive an additional €15 billion of guarantees of newly issued debt and other liabilities through December 31, 2009. The bank noted that, with the government’s assistance, Commerzbank’s Tier 1 ratio will jump to 11.2%. The bank also confirmed that its planned acquisition of Dresdner Bank will proceed, and as such, the bank has set its medium-term target range for its Tier 1 capital ratio to 7%-9%. News reports indicated that in exchange for the government’s assistance, CEO Martin Blessing’s compensation was reduced approximately one-third to €500,000. In addition, dividends are expected to be eliminated for the next two years, and the bank will cease to pay senior executive bonuses.
In addition to Commerzbank, two Landesbanken confirmed that they will also seek government aid from the Financial Markets Stabilisation Fund. West LB, which indicated two weeks ago that it was exploring strategic funding options – including government assistance – confirmed that the bank’s Supervisory Board has approved the Managing Board’s recommendation to seek government assistance. The bank intends to seek guarantees to secure the bank’s currently planned borrowing schedule; however, the bank has not yet begun talks with the government and did not indicate what amount or form of government assistance would be sought.
HSN Nordbank, which had been widely reported recently as actively seeking government assistance, confirmed that its Supervisory Board had approved the Management Board’s decision to make “partial use” of the aid package available. The bank will apply for a guarantee facility approximating €30 billion, of which half will be drawn currently with the remainder on reserve for future funding possibilities. The bank confirmed it will recognize a consolidated loss of €360 million for the first nine months of 2008, due primarily to losses incurred as a result of the Lehman bankruptcy and Icelandic bank failures. In addition, the bank, which had planned an IPO for this year, confirmed that the IPO – while still planned for a later date – will not occur in the immediate future. Rather, the bank will now look toward recapitalization options under the Financial Market Stabilisation Act.
The actions taken by these banks raises the number of German banks seeking aid from the government to five – Bayern LB and Hypo Real Estate Holding AG have already announced their respective applications for assistance.