Germany Will Get a 25% Stake in Commerzbank

By MARCUS WALKER in Berlin and MIKE ESTERL in Frankfurt The German government will take a 25% stake in Commerzbank AG after agreeing to spend another €10 billion ($13.63 billion) to shore up the finances of the country's second-largest bank. The move, announced Thursday, is the first time German authorities have taken a direct stake in a publicly listed bank since the global credit crisis erupted and follows similar steps taken in the U.S., the U.K. and other countries. It also highlights Commerzbank's struggle to absorb Dresdner Bank AG after the two banks agreed to merge last summer in a bid to create a more powerful rival to Deutsche Bank AG, the country's largest lender. German authorities are taking an aggressive approach to strengthening the country's financial system after hesitating before launching a €500 billion bank-bailout fund last autumn. The latest measures give the government a blocking minority stake. Commerzbank tapped the fund for €8.2 billion in early November to boost its finances after reporting large write-downs and losses. Under that deal, the government agreed to a "silent participation" in Commerzbank that didn't grant shareholder rights but included a share of future profits. Martin Blessing, Commerzbank's chief executive, said Thursday that the government funds will help "weatherproof" the combined Commerzbank-Dresdner group if global economic conditions deteriorate further. Commerzbank's takeover of Dresdner, first announced in August, should be completed in the next few days, he told reporters. Mounting losses at Commerzbank and particularly at Dresdner's securities unit, Dresdner Kleinwort, toward the end of 2008 made the expanded bailout necessary, according to people familiar with the matter. "The worsening general economic situation in the last quarter has hit both banks," said one person close to the deal. After Thursday's injection, Commerzbank's Tier 1 core capital ratio, a measure of a bank's health, will rise to about 10%, the bank said. That puts it in line with other major European financial groups that have been bailed out in recent months. Government officials pushed for the higher capitalization level in a meeting Wednesday, according to people familiar with the matter. Commerzbank also moved Thursday to issue a government-backed bond totaling €5 billion as part of the government bailout package. Final pricing terms are expected Friday. Write to Marcus Walker at marcus.walker@wsj.com and Mike Esterl at mike.esterl@wsj.com