The press release from the Federal Finance Agency came on Tuesday evening, shortly after the stock market closed. “Federal government reduces stake in Commerzbank” was the title, and it marked the beginning of the end of a long story. Even management was surprised. Chief Financial Officer Bettina Orlopp received the news that evening at the summer reception of the KfW development bank in Frankfurt. In 2008 and 2009, in the midst of the financial market crisis, the federal government had invested in the Frankfurt-based private bank. Commerzbank had run into difficulties, and the state supported it with capital aid amounting to 18.2 billion euros. 13.15 billion euros have since been repaid to the Financial Market Stabilization Fund, which is why the federal government still holds 16.49 percent of Commerzbank today.
But now the exit is to begin. On Wednesday, the Finance Ministry spoke of a “limited first step”. This means that the federal government is now selling a first batch of shares on the stock exchange; financial circles are talking about around four percent, and if that goes well, it will gradually sell off the entire stake.
The federal government must sell its shares “without discrimination”
Florian Toncar, Parliamentary State Secretary in the Federal Ministry of Finance, justified the move by saying that Commerzbank is now once again “a stable and profitable institution”. It is therefore necessary for the federal government to “gradually divest” of the shares. This is “a sign of the strength of Commerzbank and Germany as a financial center.” CFO Bettina Orlopp also welcomed the sale as “extremely positive” because it clearly shows that Commerzbank is back to normality and that the “turnaround has been achieved.” Volker Brühl, professor at the Center for Financial Studies at Goethe University Frankfurt, said the timing was good because Commerzbank’s valuation is likely to fall again in view of interest rate expectations.
But as clear as all this sounds, it has not yet been decided how exactly the exit will take place and what consequences this will have for the bank’s shareholder structure. One thing is clear: the federal government must sell its shares “non-discriminatory” and transparently – it cannot simply choose the new shareholder or shareholders. The background: the rescue of Commerzbank was state aid and the non-discriminatory sale was a requirement of the EU.
It is conceivable that the other major shareholders of Commerzbank, which are mainly international funds, will increase their shares and perhaps a few new ones will also buy in with smaller shares. It is also possible that new major shareholders will acquire all the shares that become available or that another bank will even make a takeover offer. Because Commerzbank will soon buys back its own sharesthe federal government’s share automatically falls because it participates in the program.
If an investor now buys more than ten percent, the ECB banking supervision authority would have to check whether the buyer is reliable, what strategy he is pursuing, where the money is coming from and whether the investor is making a long-term commitment. The federal government would also have to take a close look at who its shares would go to and what that means for Germany as a banking location, especially if the interested party is from outside Europe. Commerzbank is also an important financier of small and medium-sized businesses; the federal government is unlikely to have much interest in it disappearing from the market.
The revenue does not flow into the budget
There had been repeated attempts to take over the company, from Unicredit from Italy, the French major bank BNP Paribas and others. In the meantime, the US hedge fund Cerberus Shareholdersbut had sold the stake – at a loss. If a “foreigner” wanted to take over Commerzbank, Deutsche Bank, which wanted to merge with Commerzbank in 2019, could feel challenged. Deutsche Bank CEO Christian Sewing, however, held back on this on Wednesday. A takeover of Commerzbank would “not be an issue” under him, Sewing said at a conference of the Handelsblatt.
If the federal government falls below 15 and below ten percent, there must also be an announcement. Technically speaking, the finance agency has two options for placing the shares: either it relies on a block sale with the help of investment banks or it sells the shares gradually on the stock market. The former could be associated with discounts, the latter takes longer and carries a price risk. The income does not flow into the budget, but into the Financial Market Stabilization Fund and reduces its deficit, which was 21.6 billion euros at the end of 2023. But the federal government will definitely make losses on the investment, probably a little more than two billion euros, how much exactly remains to be seen. With a share price of 12.86 euros, the federal government’s share is currently worth around 2.5 billion euros. On Wednesday, the news was received comparatively well on the market: the price did fall slightly. But that was probably also due to the overall weak stock market.