Commerzbank may seek state capital

Commerzbank is interested in a state capital injection that could see Germany take a stake in the country's second-biggest bank, according to sources familiar with the situation. The development comes as Commerzbank continues to grapple with the fallout from the global crisis that spurred the German government to launch an emergency fund that offers guarantees and capital to the country's banks.
Exposure in troubled Iceland as well as to collapsed Wall Street investment bank Lehman Brothers are compounding Commerzbank's difficulties, said one of the sources. "The third quarter was hit by exposure to Iceland and Lehman Brothers," said the source. "That's another reason that the bank must keep a close eye on its capital base." The bank's main problem, however, is its modest capital cushion. Commerzbank's Tier 1 capital ratio - a key measure of financial health - is roughly 7.4 percent, putting it behind international rivals.
British banks now have roughly 9 percent while Frankfurt neighbour Deutsche Bank has more than 10. Commerzbank Chief Executive Martin Blessing, who will brief his supervisory board on Tuesday about the situation, will have to weigh the potential tarnishing of the bank's image by tapping the government for cash against the need for capital.
The nearly 500 billion euro ($653 billion) rescue package offers banks guarantees that make it easier for them to borrow as well as help in recapitalising their balance sheets. The fund can, however, demand weak banks beef up their capital in return for getting the debt guarantees. "Commerzbank is interested in all the instruments that the fund is offering - also on recapitalisation," said a second source. A spokesman for Commerzbank said only that the bank continued to examine participation in the fund. Commerzbank shares fell 7.2 percent to 8.345 euros by 0829 GMT, the leading decliner aamong German blue chips.
A source familiar with the German government rescue said: "One tactic would be for Commerzbank to wait for the other banks to sign up to the guarantee scheme and then slip in inconspicuously behind them with a call on the government for capital." Banks that turn to Berlin for cash are most likely to issue preference or ordinary shares which would then go to the state, an expert on the scheme said. A separate source close to the government said Commerzbank would not be alone.