Commerzbank to raise 1.4 billion euros via share sale
FRANKFURT (Reuters) - Commerzbank on Monday launched a share sale to raise 1.4 billion euros (1.00 billion pounds) from institutional investors to help to bolster its capital strength.
The sale of new shares follows Commerzbank's agreement in March to pay $1.45 billion to settle an investigation into whether it breached U.S. sanctions against countries such as Iran and Sudan.
Germany’s second-largest bank said it would seek to place the new shares with institutional investors, a move designed to raise its common equity Tier one ratio to more than 10 percent and its leverage ratio to 3.9 percent. These ratios help to gauge a bank's financial strength.
"With the successful conclusion of the capital measure announced today the bank expects a further increase in the Common Equity Tier 1 ratio to ... more than 10 percent," the bank said in a statement.
The bank also reported an 83 percent jump in first-quarter net profit to 366 million euros.
After Commerzbank's $1.45 billion settlement, analysts had said the market would focus on whether the bank would need to strengthen its capital position.
Two people familiar with the share sale transaction told Reuters that the capital increase was not connected to plans by rival Deutsche Bank to sell its retail chain Postbank .
"Postbank is not an issue. The only reason for the cap hike was to strengthen capital ratios,” one of the sources said.
Another person familiar with the matter said the bank aimed to sell the shares as close as possible to Monday's closing share price, which was 12.91 euros.
"DECENT" RESULTS
Commerzbank's first-quarter results improved both at its operating divisions and in its so-called bad bank that holds non-core assets it has been selling off since the financial crisis, the bank said.
"The primary reasons for the positive deviation in the results from market expectations are revenues from customer and capital market transactions of a comparable size, positive valuation effects and positive one-off effects," the bank said in a statement.
Analysts at Citi said Commerzbank's results were "decent," adding that they were likely to be overshadowed by the capital increase.
"We expect consensus EPS (earnings per share) to decline by high single-digits with the dilution part offset by better profitability," the analysts said in a client note. They have a "neutral" rating on the stock.
Commerzbank shares lost 2.9 percent in Frankfurt after-hours trading . The shares closed 0.9 percent higher after the regular trading session.
(Reporting by Thomas Atkins and Georgina Prodhan; Additional reporting by Arno Schuetze, Alexander Huebner and Harro ten Wolde; Editing by Maria Sheahan and Jane Merriman)
