Bloomberg News

Eurohypo Sale to Germany Should Be ‘Last Option,’ Lawmaker Says

November 29, 2011

Nov. 29 (Bloomberg) -- A sale of Commerzbank AG’s unprofitable commercial-real estate unit Eurohypo to the German government should be the “last option,” according to Bjoern Saenger, a lawmaker from Chancellor Angela Merkel’s Free Democratic Party pro-market coalition ally.

“There are other alternatives and the state doesn’t necessarily need to take it over,” Saenger, who is also on the parliament’s finance committee, said in a telephone interview today. “You should never say never, but the other options haven’t yet been sufficiently explored,” he said, citing a possible closure of the lender as one of the options.

Commerzbank is considering a sale of Eurohypo at a loss to Germany to avoid another European Union state-aid investigation, Financial Times Deutschland reported today, citing unidentified people. The EU already ordered the sale of the unit by the end of 2014 as part of the conditions for 18 billion euros ($24 billion) in rescue funds that Commerzbank received during the credit crunch.

Spokesman Reiner Rossmann declined to comment.

The German government in 2009 took control of Hypo Real Estate Holding AG, a commercial-property and public finance lender that competes with Eurohypo, in the country’s first bank nationalization since the 1930s after the company ran out of funding amid the credit crunch.

Commerzbank Chief Financial Officer Eric Strutz said in August that it would be difficult to sell Eurohypo because of funding challenges. The Eschborn-based lender, which has more than 200 billion euros in assets, had a first-half pretax loss of 871 million euros after impairments on Greek government bonds.

‘Nervous Markets’

European leaders are demanding banks bolster their capacity to withstand losses after financial firms agreed to accept writedowns on Greek sovereign debt. Commerzbank, told by the European Banking Authority last month that it may need 2.94 billion euros in fresh capital, may have to raise as much as 5 billion euros in a worst-case scenario, people familiar with the situation said last week.

Saenger criticized the latest stress tests, saying the constant changes in capital requirements and test methods were adding to insecurity on the market and forcing banks to raise capital at a time when investors won’t invest in the industry.

“At the moment we have very nervous markets and we need to help calm return,” Saenger said. “The EBA is not doing a good job at that,” he said, adding that the relationship between German regulator BaFin and the EBA is “somewhat tense.”

Commerzbank’s supervisory board will meet on Dec. 2 to discuss measures to boost capital levels to meet EBA requirements, according to two people familiar with the discussions. The lender is exploring options including placing assets such as sovereign holdings in an external entity, or bad bank, one of the people said.

--With assistance from Brian Parkin in Berlin. Editors: Stephen Taylor, Francis Harris

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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