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Bank's bailout secures EU nod
By Aoife White |
May 8, 2009, Friday
|
Print Edition
Print Edition
GERMANY yesterday won European Union backing to bail out the country's second-biggest lender, Commerzbank AG, but will face an EU probe into its rescue plan for lender Hypo Real Estate.
Commerzbank will get another 10 billion euro (US$13 billion) in fresh capital from the German government, on top of a 8.2-billion-euro cash injection it received in December.
In return the government will take a 25-percent stake in the bank.
However, the EU is placing major curbs on Commerzbank's business, ordering it to sell off property and public sector lender Eurohypo and banning it from taking over financial rivals for the next three years.
It will have to quit property lending and reduce "volatile" investment banking.
The European Commission also said it needed to investigate Germany's 35-billion-euro guarantee for Hypo Real Estate, which Berlin wants to extend beyond an initial six months.
EU Competition Commissioner Neelie Kroes questioned that the German rescue plan would successfully shore up Hypo so that it could survive in the long term without government help.
"We have doubts whether the proposed measures are sufficient to restore the long-term viability of the bank," she said.
More curbs
She also warned that more curbs on its business "may need to be done to limit distortions of competition," saying that "with so much taxpayers' money at stake, aid cannot be unconditional."
EU regulators must examine government bailouts to check that they stick to EU rules forbidding long-term state support for businesses that could not survive without help.
Hypo is the most prominent German victim of the financial crisis, running into trouble last September when an Irish unit failed to get short-term funding during the worst of the credit crunch. That forced Germany to shore up Hypo with a series of loan guarantees.
Regulators said they would probe German plans to take a stake in the troubled commercial lender - a first step toward full nationalization.
Commerzbank will get another 10 billion euro (US$13 billion) in fresh capital from the German government, on top of a 8.2-billion-euro cash injection it received in December.
In return the government will take a 25-percent stake in the bank.
However, the EU is placing major curbs on Commerzbank's business, ordering it to sell off property and public sector lender Eurohypo and banning it from taking over financial rivals for the next three years.
It will have to quit property lending and reduce "volatile" investment banking.
The European Commission also said it needed to investigate Germany's 35-billion-euro guarantee for Hypo Real Estate, which Berlin wants to extend beyond an initial six months.
EU Competition Commissioner Neelie Kroes questioned that the German rescue plan would successfully shore up Hypo so that it could survive in the long term without government help.
"We have doubts whether the proposed measures are sufficient to restore the long-term viability of the bank," she said.
More curbs
She also warned that more curbs on its business "may need to be done to limit distortions of competition," saying that "with so much taxpayers' money at stake, aid cannot be unconditional."
EU regulators must examine government bailouts to check that they stick to EU rules forbidding long-term state support for businesses that could not survive without help.
Hypo is the most prominent German victim of the financial crisis, running into trouble last September when an Irish unit failed to get short-term funding during the worst of the credit crunch. That forced Germany to shore up Hypo with a series of loan guarantees.
Regulators said they would probe German plans to take a stake in the troubled commercial lender - a first step toward full nationalization.
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