The European Commission announced today state aid decisions regarding two German financial institutions: Commerzbank and Hypo Real Estate. Separately, the German government-owned Financial Market Stabilization Fund (Sonderfonds Finanzmarktstabilisierung Finanzmarktstabilisierungsanstalt or SoFFin) announced the results of its tender offer for outstanding shares of Hypo Real Estate and next steps in the nationalization process.
The Commission approved an additional €10 billion of capital infusion from the German government, following an earlier infusion of more than €8 billion of state aid in exchange for a non-voting equity stake of approximately 25%. Following the additional capital infusion, the bank will focus on its core businesses, including retail and corporate banking, and will reduce investment banking and commercial real estate activities. Separately, Commerzbank announced that it lost €591 million in the first quarter but that it expects, as it pursues its new "Roadmap 2012" strategy, to return to profitability by "no later than 2011." After giving effect to the €10 billion capital infusion, Commerzbank said it would have had a 10.2% core (or Tier 1) capital ratio as of March 31, 2009.
The Commission also opened an investigation into state support measures for Hypo Real Estate. Noting the overwhelming amount of financial aid that Hypo Real Estate has received from the German government in the form of guarantees and capital infusions, the Commission stated that “an in-depth investigation into the aid package for Hypo Real Estate” was necessary “to ensure legal certainty and allow interested third parties to give their views.”
Hypo Real Estate has been the intense focus of the German government since last fall when it first began suffering financial difficulties. Since that time, Hypo Real Estate has received numerous aid packages totaling billions of Euros. Most recently, SoFFin launched a tender offer for a controlling interest in the bank. Yesterday, SoFFin announced that it had acquired 38.7% of Hypo Real Estate in the tender offer, bringing its total share ownership to 47.31%. An extraordinary meeting of shareholders is scheduled for June 2, at which shareholders will be asked to approve a €5.6 billion issuance of shares to SoFFin, which would raise its stake to over 90% and allow it to acquire the remaining shares.
