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Commerzbank to use government bailout money

(Agencies)
Updated: 2008-11-03 16:52

FRANKFURT, Germany -- Commerzbank AG said Monday it will use funds from the German government's bailout package to strengthen its capital base.

A sign warns people from slippery floor as they enter the headquarter of Germany's second largest business bank Commerzbank AG in Frankfurt October 31, 2008. [Agencies]

The Frankfurt-based bank, which posted a third-quarter net loss of 285 million euros and an operating loss of 475 million, said in a statement it struck an agreement with the stabilization fund that will provide Commerzbank with "silent participation" of 8.2 billion euros ($10.5 billion).

The statement said the government will also grant Commerzbank guaranteed funding commitments up to 15 billion euros ($19.4 billion), "to offer additional funding options."

"With this increase Commerzbank reflects the sharp rise in capital requirements for banks demanded by supervisory authorities, rating agencies and the capital markets in the wake of the financial crisis," the statement said.

The bank said the bailout assistance will raise the bank's Tier I capital ratio, a measure of underlying funding, to 11.2 percent and raise its medium term target range from 7 percent to 9 percent.

"We have welcomed the German government's measures from the beginning," said Martin Blessing, Commerzbank's chief executive.

"It is an important contribution to the stabilization of the financial market. We have decided to make use of the package because this is good for the bank, its employees and its clients," he said.

Finance Ministry spokesman Torsten Albig told The Associated Press that the move ensures the security of the bank's shareholders and employees as well as the availability of credit in the German economy. Albig called it a "responsible step for Commerzbank."

Commerzbank is one of several German institution that has said it will ask for help from the 500 billion euro ($642 billion) bailout package Chancellor Angela Merkel's government passed last month.

The publically-held bank BayernLB was the first, requesting 5.4 billion euros ($6.9 billion) from the fund. Commercial property lender Hypo Real Estate Holdings AG became the first private institution to take part last week by asking for 12 billion euros ($15 billion) on top of a separate 50 billion euro ($63 billion) package.

Commerzbank is Germany's second-largest bank. The largest, Deutsche Bank AG, said on Sunday that it will not ask for government funds.