Breakingviews-Berlin should sit tight on Commerzbank

Tue Jul 16, 2013 8:30pm IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Olaf Storbeck

LONDON, July 16 (Reuters Breakingviews) - The German government might be running out of patience with Commerzbank (CBKG.DE), the country's second-largest bank and a recipient of massive taxpayer investment in 2008 and 2009. Finance Minister Wolfgang Schaeuble has talked to UBS (UBSN.VX) Chairman Axel Weber about a possible takeover of the bank by the Swiss, according to Focus magazine, and Spain’s Santander (SAN.MC) could be interested in Berlin’s 17 percent stake, says Die Welt. However, the financial logic of exiting is questionable right now.

The temptation to sell is understandable. The bank's heavily beaten share price has fallen another 40 percent since the announcement of a 2.5 billion euro capital increase in March. Commerzbank plans to cull 3,900 jobs in Germany between now and 2016 – a strategy no government would enjoy being party to. More than one-fifth of the balance sheet is tied up in 143 billion euros of non-core assets. And in a free-market economy there should be no direct public ownership of banks.

In principle, Berlin's apparent willingness to accept foreign bidders would be a welcome change of mind. Until recently, Commerzbank was seen as a "national champion" that ought to be kept in German hands.

However, there is no need for Berlin to rush to get out. It will be arduous to get a strong auction going for Commerzbank in its current state. Dumping the bank now would mean selling at a distressed price, crystallising huge losses for the taxpayer. The government paid about 26 euros per share for its holding. Currently, Commerzbank trades at 6.46 euros.

Meanwhile, Commerzbank seems to be on track with its internal restructuring – although the pace is slow. On Monday, it sold its UK commercial real-estate portfolio for 5 billion euros. This puts it ahead of schedule in its plan to cut non-core assets by 70 billion euros by the end of 2016. Commerzbank has also met its cost-cutting targets for its core business.

In practice, there’s no evidence that having the government as a large but still minority shareholder is hampering the business in any way. As long as the management can sustain or even increase the momentum, there will be a better time for the government to sell.

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CONTEXT NEWS

- Spain's Banco Santander has considered investing in Commerzbank, Germany's second-biggest bank, the daily Die Welt reported on July 16, citing financial sources.

- Over the weekend, Focus news magazine reported that Finance Minister Wolfgang Schaeuble had approached the chairman of UBS about the possibility of the Swiss bank investing in Commerzbank.

- The German government owns 17 percent in Commerzbank, following a bailout in 2008 and 2009. It paid paid 5 billion euros for a stake currently worth about 1.2 billion euros.

- Reuters: Santander has considered investing in Commerzbank - paper [ID:nL6N0FM0CU]

(Editing by Chris Hughes and Sarah Bailey)

((olaf.storbeck@thomsonreuters.com)) Keywords: BREAKINGVIEWS COMMERZBANK/

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