Bank rescue gets nod from Brussels
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The Associated Press
Oluşturulma Tarihi: Mayıs 08, 2009 00:00
BRUSSELS - Germany yesterday won EU backing to bail out the country's second-biggest lender Commerzbank but will face an EU probe into its rescue plan for lender Hypo Real Estate.
Commerzbank will get another 10 billion euros in fresh capital from the German government, on top of a 8.2 billion euros cash injection it received in December. Berlin takes a 25-percent stake in return.
The European Commission also said it needed to investigate Germany's 35 billion euros guarantee for Hypo Real Estate which Berlin wants to extend beyond an initial six months. They said the probe was a standard check on whether the government bailout sticks to EU rules forbidding long-term state support for businesses that could not survive without help.
Hypo is the most prominent German victim of the financial crisis, running into trouble last September when an Irish unit failed to get short-term funding during the worst of the credit crunch. That forced Germany to shore up Hypo with a series of loan guarantees.
Regulators said they would probe German plans to take an 8.7 percent stake in the troubled commercial lender - a first step toward full nationalization - and could "possibly" investigate an additional state capital injection. The government's bank rescue fund wants to buy 20 million shares in the bank for 60 million euros ($81 million) and parliament is currently looking at a law that would allow the government take full control of the bank by expropriating shareholders if necessary.
Hypo lost 5.46 billion euros last year. U.S. private equity firm J.C. Flowers and its shareholders own about 17 percent of Hypo Real Estate, while Grove International Partners and its shareholders own about 6.7 percent. For Commerzbank, the government recapitalization will raise its core capital ratio to 10 percent - well above a global standard for banks to hold at least 8 percent of capital to cover potential losses. But in return, it will face major curbs on what business it can do in future and will have to divest some 45 percent of its current balance sheet.
The European Commission also said it needed to investigate Germany's 35 billion euros guarantee for Hypo Real Estate which Berlin wants to extend beyond an initial six months. They said the probe was a standard check on whether the government bailout sticks to EU rules forbidding long-term state support for businesses that could not survive without help.
Hypo is the most prominent German victim of the financial crisis, running into trouble last September when an Irish unit failed to get short-term funding during the worst of the credit crunch. That forced Germany to shore up Hypo with a series of loan guarantees.
Regulators said they would probe German plans to take an 8.7 percent stake in the troubled commercial lender - a first step toward full nationalization - and could "possibly" investigate an additional state capital injection. The government's bank rescue fund wants to buy 20 million shares in the bank for 60 million euros ($81 million) and parliament is currently looking at a law that would allow the government take full control of the bank by expropriating shareholders if necessary.
Hypo lost 5.46 billion euros last year. U.S. private equity firm J.C. Flowers and its shareholders own about 17 percent of Hypo Real Estate, while Grove International Partners and its shareholders own about 6.7 percent. For Commerzbank, the government recapitalization will raise its core capital ratio to 10 percent - well above a global standard for banks to hold at least 8 percent of capital to cover potential losses. But in return, it will face major curbs on what business it can do in future and will have to divest some 45 percent of its current balance sheet.