Capital queue

3 November 2008 By Mike Prest

The bank has finally agreed terms with the government with tough pay limits. It will tap the state for E8.2bn of capital and E15bn of guarantees. Others are in line for similar treatment. But Deutsche Bank is resisting taking the medicine which could leave it looking ill.

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Commerzbank is to receive E8.2bn in capital from the German government's Financial Markets Stabilisation Fund (SoFFin). The nonredeemable preference shares will qualify as Tier 1 capital. The capital is in two tranches of E4.1bn each. The first tranche will carry a coupon of 8.5%; the second, 5.5%. An additional amount, linked to the dividend and to be agreed in future negotiations, will be payable if dividends resume. While the first tranche is repayable at par, repayments of the second – lower coupon –tranche will be between 100% and 145% of par, depending on the size of dividends.

The Tier 1 capital ratio will rise to 11.2%. The mediumterm Tier 1 capital target range when the takeover of Dresdner Bank is completed will be 7% to 9%.

SoFFin will also guarantee up to E15bn of additional new debt issued by Commerzbank by December 31, 2009. Liabilities guaranteed by SoFFin have a maximum maturity of 36 months. All guarantees mature by the end of 2012 and Commerz will pay a market fee for the guarantees.

Martin Blessing, CEO of Commezbank, said: We are comfortably refinanced for 2008 and beyond. As of today there is no current need for any guarantees.

Commerzbank will pay no dividends in 2009 and 2010, and no bonuses will be payable for 2008 and 2009. The annual compensation of the CEO, Martin Blessing, and managing board members will be capped at E500,000.

The bank announced a net loss of E285m for the third quarter compared with a profit of E339m for the same period of 2007.

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