Commerzbank said on Wednesday that it plans, once again, to ask shareholders to put in more cash. In today’s announcement, the no-moat bank gave a broad outline of its plans, with more details to be published on March 18. To expedite the capital raise, Commerzbank has moved the date of its annual general meeting forward to April 19, when shareholders will vote on the plan.

The first step of the proposal is a 10:1 reverse split. This will be followed by a fully underwritten EUR 2.5 billion rights offering, which will allow the bank to repay the remaining EUR 1.6 billion of the EUR 16.4 billion “silent participation” bailout the bank received from the German government during the crisis.

The German government, through its SoFFin fund, also bought shares in Commerzbank; after this transaction the government’s stake is expected to fall from 25% to below 20%. Optimistically, we think Commerzbank may be able to sell the shares at a 20% discount to today’s trading price, or about EUR 1 each (just over 25% of tangible book value).

However, there is some downside to this projection–in 2011 Commerzbank’s rights issue offered shares at about a 40% discount to their market price. Analysts estimate that the transaction will increase Commerzbank’s tangible common equity ratio to about 4% from 3.2% as of Sept. 30. Similarly, the bank said that its full-loaded pro-forma Basel III ratio is expected to increase to 8.6% from 7.6% at year end.

Both capital measures are below what analysts would like to see, and the bank will have to see a significant improvement in profitability if shareholders are to see any dividends in 2014.


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