Germany pledges hands-off approach to Commerzbank

Berlin agreed on Thursday to inject 10 billion euros ($13.68 billion) in fresh capital to shore up Commerzbank as it acquires rival Dresdner Bank, taking a blocking minority stake in Germany's second-biggest lender in exchange.

Finance Ministry spokesman Torsten Albig said there were no requests from other banks for the government to take stakes in them. The government would not remain a Commerzbank shareholder for a "lasting period of time", he added.

The government will take two seats on Commerzbank's supervisory board but promised restraint.

"It would be fatal and stupid for the government to influence the operational business," Albig told a regular government news conference.

The government's move to take the stake in Commerzbank underscored the risk of executing a major takeover during the financial crisis and prompted several brokers to downgrade their recommendations and price targets for the stock.

Both banks faced renewed writedowns in the fourth quarter, sources familiar with the situation told Reuters earlier this week, raising concerns their capital base could wear thin.

To gain the 10 billion euros in government cash, Commerzbank will issue 295 million ordinary shares at an agreed price of 6 euros each. The deal also includes a "silent" participation of 8.2 billion euros, which counts as capital but has no votes.

The terms of the agreement, the prospect of subdued banking revenues ahead and merger-related restructuring would weigh on Commerzbank for some years to come, analysts said.

"I assume there will be no dividend paid at least for 2008-2010," Merck Finck analyst Konrad Becker said.

DILUTION
Analysts also focused on the dilution of Commerzbank's stock as a result of the government's capital injection.

"In a nutshell, we find no reason at all to chase Commerzbank shares, and it is hard to see positive newsflow any time soon," UBS analysts said in a research note.

"It remains very questionable why Commerzbank went ahead with the Dresdner acquisition," they added.

Albig said he expected renewed vigour once the financial crisis is over: "It will be a successful, strong company."

"It (the share price) must rise, it will rise," he added.

The stock has fallen more than 80 percent in the last year, cutting Commerzbank's market cap to around 3.6 billion euros.

"The conundrum as to whether the silent participations are really equity or not is irrelevant in our view, as we need to look at dilution in any case," JP Morgan analysts wrote.

"We believe that either they will be reimbursed issuing fresh equity when the market will allow it, or will be converted into common equity, although admittedly timing remains very uncertain," they said.

Commerzbank and Dresdner owner Allianz said on Thursday they now expected the 5 billion euro takeover of Dresdner to be wrapped up within days.

The German government had already agreed to an 8.2 billion euro capital injection for Commerzbank late last year, making it Germany's first commercial lender to turn to the government for help in the wake of the financial market crisis.