Michael Probst, File, Associated Press
FRANKFURT, Germany — Germany's Commerzbank said Thursday it has found a way to increase its capital cushions, as required by regulators to protect against possible losses from the eurozone debt crisis, without taking more state aid.
The bank, whose shares were up 11 percent on the news in midday trading Thursday in Germany, said it would plug a €5.3 billion ($6.8 billion) capital shortfall identified by the European Banking Authority by "relying on its own strength." The German government already owns 25 percent of the bank after a previous bailout.
Commerzbank said it will raise €6.3 billion in capital by holding back cash from its quarterly earnings and cutting back on risky investments. The bank has until June 30 to find the additional financial padding.
Commerzbank's capital needs had been a point of concern in a banking system shaken by Europe's crisis over too much government debt in some countries. The EBA is pushing banks across Europe to raise €115 billion ($147.56 billion) in new capital by June 30 to strengthen the banking system. The crisis affects banks because they hold large amounts of government bonds, whose prices have been affected by fears of default.
European officials are trying to prevent losses from the crisis from making banks cut off loans to businesses. That could hurt the economy and deepen what is expected to be at least a mild eurozone recession.
Commerzbank said it had already found €3.0 billion of the required capital by the end of last year by setting aside €1.2 billion in fourth-quarter profits and by cutting its risky loans, securities holdings and other investments by €1.6 billion. Reducing loans and investments — so-called risk weighted assets — reduces the amount of capital needed to backstop against any potential losses on those investments.
It added it would find the rest by the deadline using similar methods, saying that it would also save up to €250 million by compensating some employees in stock instead of cash, depending on how many employees participate.
Commerzbank needed state aid in the wake of the financial crisis that followed the collapse of U.S. investment bank Lehman Brothers in 2008. It has since been buffeted by Greece's financial difficulties; it wrote down €798 million in Greek bonds in the third quarter, saying it had taken a loss of 52 percent on its holdings.
Banks are increasing their capital in a tough environment. It is difficult to raise money from investors by issuing shares due to fears about the banking system. At the same time the EBA is pressing banks not to find the money by cutting back on loans to businesses.
Commerzbank cautioned that its plans to meet the capital requirement depended on there being no further deterioration of the economy and, in particular, no further escalation of the government debt crisis. It said that it still has other options if need be, including issuing equity capital instruments.
The bank said that it hoped to have capital buffers of 11 percent against its loans, investments and other securities holdings by June 30 — in excess of the required 9 percent.
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