German government takes 25% stake in Commerzbank

by Gill Montia

Story link: German government takes 25% stake in Commerzbank

The German government has taken a 25% stake in Commerzbank, the country’s second biggest lender, in return for an €18 billion (£16 billion) injection of cash.

Commerzbank has already received €8 billion from Germany’s bank bail-out fund, in November, but the group is in the process of acquiring Dresdner Bank and says the latest assistance is needed to stabilise its capital base, having posted a third quarter loss of €285 million.

The acquisition of Dresdner is being made from German insurer, Allianz, and is scheduled for completion in early 2009.

The deal has the support of the German government and the new injection of public money reflects the level of importance attached to the deal by politicians.

Dresdner has posted heavy losses from the US sub-prime mortgage crisis and the price paid by Commerzbank has already been halved, to €5 billion.

Even then, Commerzbank has been under pressure to strengthen its capital position to take on its unfortunate rival, which analysts suggest would have to be fully nationalised should the proposed merger fall through.