German government injects €10bn into Commerzbank

State to take 25 per cent stake to preserve merger deal with Dresdner Bank

The German government has stepped in to salvage a multibillion-euro merger between two of the country's largest banks, Commerzbank and Dresdner Bank, with a €10bn (£9bn) cash injection.

The announcement, in effect a partial nationalisation of the combined group, came after several days of tense negotiations between executives from the two banks and state officials. "The government just couldn't afford to let this deal fail," one insider said.

Commerzbank had been under intense pressure to strengthen its balance sheet as it prepared to buy its loss-making rival. It is understood that the deal, agreed last year, would have collapsed had the government refused to invest through its Financial Markets Stabilisation Fund (Soffin). The merger is now expected to complete by the end of the month.

Commerzbank would have survived had the merger collapsed, but there was speculation yesterday that Dresdner would have had to be nationalised in full. Instead, the state will take a 25 per cent and one share holding – a minority blocking stake – in the "new Commerzbank" in return.

This brings the government's financial support for Commerzbank to €18.2bn in just over two months. On 2 November, Soffin injected €8.2bn through a "silent participation" – equivalent to preference shares in the UK – in a bid not to dilute the company's value. Yesterday's move involved a further €8.2bn silent participation, and a €1.8bn investment to take the 25 per cent stake.

The finance ministry set up the bank rescue scheme in October to stabilise the banking market. It put together a fund of up to €500bn to help struggling financial groups. It has already provided debt guarantees to three institutions: Bayerische Landesbank, IKB Deutsche Industriebank and HSH Nordbank. One bank to tap the fund was Hypo Real Estate Holding, which received a €50bn cash injection in October.

As part of yesterday's deal, Allianz, the giant German insurer that currently owns Dresdner, said it would put €1.45bn of new capital in Dresdner before the Commerzbank deal is completed. Allianz will also take €17.5bn worth of Dresdner's more risky assets on to its own books.

The capital injections will increase Commerzbank's core capital ratio, the indication of a company's solvency, to about 10 per cent, which will see it meet the tougher regulatory requirements in the wake of the credit crunch.

Martin Blessing, chairman of Commerzbank, said: "We are weatherproofing our bank for an economically stormy environment. This will enable us to fulfil our responsibility to offer loans to the German economy and to ensure we will continue to be a reliable partner for our clients."

The merger was first agreed in September, in a cash and shares deal valued at €9.8bn. The slump in global markets and two renegotiations of terms later, the deal is worth €5.5bn. "The rationale for the deal still makes sense in the long term," the insider added.

The merged company will overtake Deutsche Bank as the largest retail bank in Germany. The deal was initially expected to be carried out in two stages, with completion at the end of the year. But the renegotiations mean it will complete at the end of January.

The integration is already under way and the group is looking at cost-cutting, including headcount reduction, across the board. About 9,000 of the 67,000 workforce are set to go. In London, half of the 2,000 employees face the axe from Dresdner Kleinwort.

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Business Analyst (Agile, SDLC, software)

£45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

Finance Manager - Bank - Leeds - £300/day

£250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

£100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

Day In a Page

Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn