German bank to buy back €600m debt

GERMANY’S second-biggest bank, Commerzbank, said it would buy back €600m (£515m) of its own hybrid equity from investors yesterday in a bid to shore up its capital position to meet tough new Basel III capital requirements due to take effect in 2013.

Commerzbank said it would buy back the trust-preferred securities, which are a mixture of debt and equity, at only between 40 and 52.5 per cent of their original issue price, allowing it to book a capital gain.

The bank will buy back about €1.2bn of a total €2.23bn of its hybrid instruments in issue to increase its core Tier 1 capital ratio, which needs to be nine per cent by 2013.

“The transaction marks another step in optimising Commerzbank’s capital structure in light of the transition to the new regulatory requirements of Basel III. Execution of the transaction will have a one-off positive effect on the consolidated results of the bank,” it said in a statement.

Commerzbank is loaded up with holdings of Eurozone sovereign debt and has said it needs at least €2.9bn of additional capital to meet the new higher threshold for capital held against risky assets specified by the European Banking Authority.

It fell to a worse-than-expected €687m quarterly loss last month after writing down its Greek bond holdings by 50 per cent in line with the agreement struck with European governments.