Commerzbank to raise €1.4bn to boost capital

Commerzbank is to raise up to €1.4bn in capital in an attempt to strengthen its financial position, one month after paying a big fine to US regulators.

Since the financial crisis, regulators around the world have been pushing for banks to hold more capital in an effort to make them safer. Commerzbank's core tier one capital ratio - a closely watched measure of financial strength - stood at 9.5 per cent at the end of March, a relatively low level in comparison with its peers.

In a statement after the market closed on Monday, Germany's second-largest lender acknowledged the pressure for higher ratios, and said that the capital increase would bolster its ratio to "more than 10 per cent".

"The level for the common equity tier 1 ratio demanded in the meantime by the capital market will be attained more quickly than planned," it said.

Analysts at Citigroup said that the capital increase - which comes just weeks after Commerzbank paid $1.45bn to resolve investigations into whether it breached US sanctions and money laundering rules - "should help to remove any remaining capital concerns."

Commerzbank will carry out the increase by issuing up to 113.85m new shares - equating to roughly 10 per cent of its existing share capital. The bank said that the shares would be offered to institutional investors through a private placement, with itself and Deutsche Bank acting as joint bookrunners.

The bank said it expected that the capital increase would also improve its leverage ratio to 3.9 per cent, up from 3.7 per cent at the end of March, and closer to the target of 4 per cent that it announced in February.

"The ongoing strengthening of the CET 1 capital ratio and of the leverage ratio remains a strategic objective of the bank. It is planned to increase these organically on an ongoing basis," Commerzbank said, reassuring shareholders that despite the capital raising, it was still aiming to boost its post tax return on equity to 10 per cent by 2016.

Alongside the unexpected capital increase, Commerzbank - which is a key lender to the small- and medium-sized businesses that make up the backbone of Germany's economy - released preliminary figures for the first quarter.

In the three months to the end of March, Commerzbank's revenues reached €2.78bn, up almost a quarter on the same period a year earlier. Net income almost doubled to €366m, as loan loss provisions fell to €158m from €238m a year earlier.

The bank is due to present more detailed figures on May 7.

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