COMMERZBANK AG yesterday tapped the German government for 8.2 billion euros (US$10.6 billion) and France's Societe Generale SA reported an 84-percent plunge in profit amid the worst financial crisis since the Great Depression.
Commerzbank, Germany's second-biggest bank, rose as much as 13 percent in Frankfurt trading after turning to the state's 500-billion-euro rescue package for financial institutions to boost capital. Societe Generale said third-quarter profit dropped to 183 million euros on credit-related writedowns.
Banks from UBS AG in Zurich to New York-based Citigroup Inc were forced into government rescues after the September bankruptcy of Lehman Brothers Holdings Inc froze credit markets. Commerzbank, the first publicly traded German bank to get a capital injection under the state plan, said the funds won't dilute shareholders.
"The size of the capital injection needed gives evidence of the weakness of Commerzbank's capital base," said Konrad Becker, an analyst at Merck Finck & Co in Munich, who has a "hold" rating on the shares. Commerzbank climbed 8.3 percent to 9.13 euros by 11:19am in Frankfurt, valuing the company at 6.6 billion euros. Societe Generale, the third-largest French bank by assets, rose 1.8 percent to 42.95 euros in Paris. The stock is down 54 percent this year.
Quarterly loss
Commerzbank sought the government funds after reporting a third-quarter loss of 285 million euros, compared with a 339-million-euro profit a year earlier. As part of the deal, the bank won't pay dividends in 2009 and 2010 and will cap Chief Executive Officer Martin Blessing's salary at 500,000 euros.
The Frankfurt-based lender, which agreed in August to buy Dresdner Bank from Allianz SE, will also obtain funding commitments of about 15 billion euros. "The positive aspect is that Commerzbank found a way to raise capital without having to re-negotiate the Dresdner acquisition from Allianz," said Becker.
Commerzbank said the government won't receive an equity holding or get a seat on the board as a result of the aid. The state money will be provided in two steps of 4.1 billion euros each, with an interest rate of 8.5 percent on the first installment and 5.5 percent on the second.