Jan. 19 (Bloomberg) -- Commerzbank AG jumped the most in more than two months in Frankfurt after Germany’s second-largest lender said it’s more than halfway to its goal of raising capital, and can do so without asking for state aid.
The shares gained 15 percent to 1.62 euros, the most since Oct. 27, valuing the company at about 8.3 billion euros ($10.7 billion). It was the biggest increase in Germany’s benchmark DAX Index.
Commerzbank Chief Executive Officer Martin Blessing said today that asset sales, retained earnings and capital management fulfilled 57 percent of its 5.3 billion-euro target by the end of 2011. European leaders are demanding banks increase reserves to bolster confidence after financial firms agreed to accept losses on Greek government bonds.
“The most important news is that they already reduced capital requirements by 3 billion euros in the fourth quarter,” said Matthew Clark, a bank analyst at Keefe, Bruyette & Woods Inc. in London.
The bank can strengthen capital by 6.3 billion euros by raising funds and reducing risk-weighted assets by June 30, Frankfurt-based Commerzbank said today. That’s more than the 5.3 billion-euro shortfall, the largest of six German banks, the European Banking Authority told the lender to plug.
German Chancellor Angela Merkel’s government welcomes Commerzbank’s plan to raise capital, the Berlin-based Finance Ministry said in an e-mailed statement.
Commerzbank also has a “Plan B” courtesy of Allianz SE, Clark said. The German bank is in “constructive talks” with its largest shareholder after the German government over the option of Allianz converting its non-voting capital of 750 million euros into core Tier 1 capital, Blessing said today. Such a move would “provide an additional cushion,” Clark said.
In December, the EBA told banks to raise 114.7 billion euros in fresh capital by the end of June as part of measures introduced to respond to the euro area’s fiscal woes. The regulator called for lenders to have core Tier 1 capital, a measure of financial strength, equivalent to 9 percent or more of their risk-weighted assets after accounting for writedowns on some European sovereign bonds.
Commerzbank said it reduced risk-weighted assets by more than 17 billion euros by the end of 2011, boosting core Tier 1 capital by 1.6 billion euros. The company also had about 1.2 billion euros of retained earnings in the fourth quarter, which includes income from the buyback of hybrid equity instruments and excludes potential further Greek writedowns. Commerzbank boosted its core Tier 1 capital by 200 million euros with “efficient” management of its capital structure, according to the statement.
Closing the Gap
“We stand by our word: we do not intend to make use of additional public funds,” Eric Strutz, the company’s chief financial officer, said in the statement. “With the approved set of measures the bank is showing that it is able to meet the capital requirements of the EBA relying on its own strength even in a difficult environment.”
Commerzbank had profit after tax of about 1.6 billion euros last year, according to preliminary figures and international accounting standards, Blessing said in a copy of a speech to reporters in Frankfurt today.
The bank said it can close the remaining gap with a mix of measures including a further 17 billion-euro reduction in risk- weighted assets and 1.2 billion euros in retained earnings.
Commerzbank also cited 350 million euros in lower regulatory capital deductions for securitization positions as the lender winds down some businesses and sells assets. The bank said it could also raise 250 million euros if employees accepted more stock as compensation.
The German lender has the option of a capital increase, Strutz said in a Bloomberg Television interview today.
“Our first priority is what we presented today,” he said in the interview at Commerzbank’s Frankfurt headquarters today. “This does not include any additional capital measures, so indeed, I’m not calling it a Plan B, but that would be an option that would go on top.”
Blessing has spent three years trying to free the lender from government aid needed to survive fallout from the 2008 collapse of Lehman Brothers Holdings Inc. The German government owns 25 percent of Commerzbank as a result of the 2008 bailout.
--With assistance from Aaron Kirchfeld in Frankfurt and Niklas Magnusson in Hamburg. Editors: Steve Bailey, Keith Campbell
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