The 2nd biggest bank of Germany, Commerzbank is planning to sell shares worth 2.5 Billion Euros so that it can repay the German Government and Allianz SE. Incidentally, Commerzbank has experienced the biggest decline since November, 2011. The plans were divulged through an email statement and according to it; shareholders will be requested to approve a reverse share split on 19th April. This will ensure that total number of shares is reduced from 5.83 billion to 583 million.
25% of the total stake of Commerzbank is owned by the German Government as it received a bailout worth 18.2 Billion Euro in 2009. Commerzbank is planning to sell the shares so that capital can be strengthened and the consumer banking unit can be restructured as well. To repay the Government aid, it used up the 5.3 Billion Euro that it collected through a stock offering in June, 2011.
According to the Analyst of Keefe, Ronny Rehn, this plan of Commerzbank is going to dilute the earnings per share by around 15%; hence this is definitely something that can be swallowed by the investors. Ronny added that he expected this share buyout to occur at a later part of this year though as that’s the time, when Commerzbank would have had better story to share after progressing on the overhaul.
Commerzbank shares declined by around 11% and these are currently trading at 1.25 Euros per share. Thereby, the current valuation of the company stands at 7.3 billion Euros.
Banks such as HSBC Holdings, Citigroup and Deutsche Bank AG have already decided to underwrite the capital increase plan of Commerzbank. Therefore, if Commerzbank is not able to sell all of the shares as planned, these banks will buy them off at a minimum price of 1.1 Euro per share.
According to the Analyst of Keplor Capital Markets, Dirk Becker, probably, the officials of Commerzbank feel that things can get even worse than where they stand as of now. Dirk has made a buy recommendation on the stock. Dirk added that perhaps the Commerzbank officials are not optimistic about the earnings retention capacity of themselves.
Under the current plan, the equity stake of the Government is expected to fall below 20%, as stated by the Chief Executive Officer of Commerzbank, Martin Blessing. He added that the capital will be used to payback silent participations.