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ECONOMY

Commerzbank mulls state-backed bond issue

Germany's second biggest bank, Commerzbank, may raise fresh funds via what would be the first government-backed German bond issue within the framework of a banking sector rescue package, a spokeswoman told AFP on Tuesday.

Commerzbank mulls state-backed bond issue
Photo: DPA

“Commerzbank is considering a bond issue” backed by government guarantees, she said, before adding that the bank had decided “neither the moment, nor the volume nor the duration,” of such an operation.

The Financial Times Deutschland newspaper reported that bonds could be issued for a total value of between €1 billion and €2 billion ($1.34 billion $2.68 billion) and that they could be launched this week.

The report said the funds raised might be used to finance the purchase of Dresdner Bank from the insurance group Allianz but a financial source told AFP that any bond issue would be “independent” of the Dresdner acquisition.

Worth €5.1 billion, the takeover of Dresdner would be finalised “in January 2009,” the bank spokeswoman said.

Commerzbank has applied for state loan guarantees worth a total €15 billion and a state capital injection of €8.2 billion to help it cope with the global financial crisis. Since it applied for the state aid, “the situation has seriously deteriorated,” the newspaper quoted a source close to the matter as saying.

Besides Commerzbank, regional state-owned German banks and another private groups have also obtained state guarantees for possible bond issues.

HSH Nordbank plans such an operation next week and southern peer BayernLB is preparing a similar operation, a spokesman told AFP on Tuesday. The now private business lender IKB is also mulling a bond issue backed by state guarantees, the FTD said.

Commerzbank and Allianz are also negotiating together with the German banking sector stability fund Soffin for public aid for Dresdner Bank, which was hit hard by the international financial crisis, the business daily Handelsblatt said on Tuesday. A Soffin spokesperson declined to comment when contacted by AFP.

In late Frankfurt trade, shares in Commerzbank were down 2.29 percent to €6.40 while the DAX index of leading shares showed a gain of 0.97 percent overall. Allianz was off by 4.90 percent at €73.16.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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