Withdrawal of Administrative Interference - Bund is offloading Commerzbank shares – what's the tagged price point?
With a 16-year stretch post-financial crisis, the government plans to progressively relinquish its stake in Commerzbank. The government declared a tentative initial step in selling shares, as per the finance ministry report. The complete withdrawal timeline remains uncertain. The state's profit is nowhere near attainment.
On Tuesday evening, the finance ministry disclosed the government's intentions to dissociate from Commerzbank. In a preliminary move, the government intends to decrease its 16.49% stake in Commerzbank, held through the Financial Market Stabilization Fund (FMS).
Florian Toncar, Parliamentary State Secretary in the Federal Ministry of Finance and head of the responsible interministerial steering committee, commented, "Commerzbank has once again proven to be a steady and profitable entity. Therefore, it's appropriate for the state to gradually withdraw its shares from the successfully stabilized institution."**
Billion-euro rescue during the financial crisis
The government rescued the Frankfurt-based bank, which absorbed the struggling Dresdner Bank during the global financial crisis, with substantial tax funds. Commerzbank received a capital infusion of 18.2 billion euros from the FMS in 2008 and 2009. Around 13.15 billion euros has been repaid so far, according to the finance ministry. However, the government still remains the bank's largest individual shareholder.**
At the current share value, the remaining government stake is worth approximately 2.5 billion euros. The initial acquisition cost was around five billion euros. To make a profit, the share price would need to reach around 26 euros - Commerzbank shares last traded at around 13 euros.**
Contrarily to the rescue of Lufthansa, which the government rescued during the corona pandemic and accrued more than 700 million euros in profits from the sale of its stake, the taxpayer is likely to sustain losses at Commerzbank.**
The profits from the sale of Commerzbank shares will be channeled into the Financial Market Stabilization Fund, which supported other institutions during the financial crisis. According to the finance ministry, the fund had a deficit of around 21.6 billion euros at the end of 2023.**
Commerzbank overcomes the crisis
Commerzbank has long since emerged from the crisis through extensive corporate restructuring. Last year, the company reported a record profit of approximately 2.2 billion euros. Manfred Knof, who assumed the CEO position at the start of 2021, has intensified the austerity measures: The bank has let go of thousands of employees and significantly reduced its German branch network. The net profit is projected to reach 3.4 billion euros by 2027.**
The federal government likely approved of this development. At the beginning of the year, it had already announced plans to sell additional corporate stakes. Reinhard Houben, the FDP Parliamentary Group's economic policy spokesperson, deemed the sale of the federal government's stake in Commerzbank a positive sign. "With this, the federal government is continuing its consistent stance of also disposing of corporate stakes."**
Government sells state-owned shares
In February, the government sold shares in Deutsche Post valued over two billion euros. This revenue is intended for a planned capital increase at state-controlled Deutsche Bahn.**
State holdings can be beneficial in certain cases. However, a prerequisite is that the state withdraws from companies when its participation is no longer necessary. In light of this, the federal government should also divest itself of most of its shares in the energy company Uniper and not prolong the planned withdrawal deadline of 2028," said Houben.**
Does the state's departure invite new investors?
The impending state departure sparks speculation about potential major investors joining Commerzbank or even a takeover. However, Deutsche Bank CEO Christian Sewing quickly dismissed such aspirations on Wednesday. "Our focus is on Deutsche Bank," Sewing stated at the Handelsblatt banking summit in Frankfurt. Under his leadership, a Commerzbank takeover by Deutsche Bank "will not be a consideration," he replied when asked.**
The Commerzbank has frequently been considered a takeover target by both domestic and foreign banks. There have been rumors of a Commerzbank sale to Italian UniCredit. Deutsche Bank and Commerzbank had previously held merger talks. Such discussions failed in 2019.**
Commerzbank CFO Bettina Orlopp stated at the Handelsblatt conference that the finance ministry's announcement was proof of Commerzbank's correct direction. If potential investors express interest in joining the bank, we will examine it. "However, our top priority is to advance Commerzbank."
The financial crisis led Commerzbank to require a billion-euro rescue from the government, with the state becoming its largest individual shareholder. Now, with the government planning to sell its stake in Commerzbank post-financial crisis, the state's potential profit from the sale could help offset the deficit in the Financial Market Stabilization Fund, which was utilized during the same financial crisis.
