Commerzbank to be partially nationalised

Germany's second biggest private bank, Commerzbank, will be partially nationalised, it said on Thursday.

Commerzbank to be partially nationalised
Photo: DPA

After the bank receives €10 billion ($13.6 billion) in fresh capital from the German banking sector stabilisation fund SoFFin, the federal government will hold a stake of 25 percent plus one share in the bank.

“We are weatherproofing our bank for an economically stormy environment. This will enable us to fulfill our responsibility to offer loans to the German economy and to ensure we will continue to be a reliable partner for our clients,” said Martin Blessing, Chairman of the Commerzbank Board of Managing Directors.

The planned capital measures will increase the bank’s core capital ratio (Tier 1, HGB) to approximately 10 percent with the aim of allowing it to meet the substantially higher capital requirements needed in the wake of the global financial crisis.

The government already provided Commerzbank with €8.2 billion in cash in December, along with loan guarantees worth €15 billion, and on Thursday the bank was trying to raise €1 billion via a Berlin-backed bond issue.

The move comes as Commerzbank buys another troubled German bank, Dresdner Bank, from insurance giant Allianz, putting its finances under strain.

Munich-based insurer Allianz will now also recapitalise Dresdner Bank, which is in the process of being taken over by Commerzbank, with €1.45 billion by transferring collateralized debt obligations.

The Finance Ministry said that taking a stake in Commerzbank was not nationalisation because it was “a silent participation” that did not include voting rights, which would have given the government a management say. Rather, the state sought to send “a strong signal for a strong bank,” it said.

SoFFin would pay €6 per share and the German government “is clarifying all further details with the EU Commission,” Commerzbank said.

Shares in the bank lost 13.79 percent to €5.25 by the close on Thursday, while the DAX index of leading shares was off 1.17 percent overall.


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.


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.