WSJ: German Banks May Add To Capital

BUSINESS|APRIL 6, 2011
German Banks May Add To Capital

By LAURA STEVENS, DANA CIMILLUCA and EYK HENNING

FRANKFURT—Germany's largest commercial banks—Deutsche Bank AG and Commerzbank AG—are expected to seek shareholder approval to raise billions of euros in capital, in the latest sign that Europe's banks are seeking to shore up their balance sheets in anticipation of a tougher regulatory environment.

Deutsche Bank, one of Europe's largest banks, said Tuesday in the invitation to its May shareholder meeting that it would seek approval to raise as much as €18 billion ($26 billion) in fresh capital.

Commerzbank, meanwhile, outlined plans Wednesday for a capital increase of up to €11 billion as the bank looks to emerge from a multibillion-euro government bailout it received during the financial crisis.

While it isn't certain that either bank will ultimately pursue capital increases even if shareholders give them authority to do so, the preparations underscore the continued efforts by European banks to bolster their finances ahead of sweeping regulatory changes that would force banks to take fewer risks. German banks, which are among the most exposed to the government debt crisis along Europe's periphery, have long been viewed as undercapitalized.

Deutsche Bank raised €10.2 billion in October as part of its acquisition of German retail banking giant Postbank AG last year. That deal was meant to reduce Deutsche Bank's reliance on investment banking in the wake of the financial crisis. Though it has made progress in that direction, Deutsche Bank has failed to convince many investors and analysts that it is adequately capitalized for its total balance sheet of €1.9 trillion.

"Deutsche Bank, under Basel III, is arguably one of the least well-capitalized banks in the sector," said Nomura analyst Jon Peace, referring to upcoming global banking standards named after the Swiss city of Basel.

At a banking event Friday in Cernobbio, Italy, Deutsche Chief Executive Josef Ackermann said that no further capital hikes are planned and that the bank is well capitalized.

Unlike Deutsche Bank, which hasn't accepted any government aid, Commerzbank, Germany's second largest bank, required an €18.2 billion bailout from the government in 2009.

The German government holds a 25% stake in Commerzbank via "silent participation," a special class of subordinated debt. Commerzbank's management has said it would like to free itself from government influence as soon as possible.

Before proceeding with such a massive share sale, Commerzbank would need permission from its shareholders. The bank, which has a balance sheet of €754 billion, is likely to announce its intention to launch a rights issue subject to a shareholder vote that would take place in May, according to people familiar with the matter. A Commerzbank spokesman declined to comment.

Commerzbank representatives were canvassing shareholders Tuesday about possible moves, according to another person briefed on the matter.

Under one scenario making the rounds among investors, the government would convert its current stake into common shares that would count as core capital. It would then sell some of those shares ahead of a rights issue.

Helping the government to exit also would bring about additional benefits of higher pay for executives, increased profits and the lifting of many restrictions, according Dirk Becker of Kepler Capital Markets.

—William Launder contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Eyk Henning at eyk.henning@dowjones.com

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