How Germany Might Sell Its Commerzbank Stake: Four Scenarios

(Bloomberg) -- Angela Merkel’s rescue of Commerzbank AG almost a decade ago was never planned to be a long-term solution. And yet no immediate sale seems likely, even as she embarks on her fourth term.

Divesting the 15.5 percent stake wasn’t even discussed during the new government’s coalition negotiations, according to people familiar with the matter, who said selling the Commerzbank holding is at the bottom of its to-do list. A quick sale can’t be expected for as long as the conditions aren’t ripe, a government official said, on condition of anonymity.

Still, the finance ministry, which manages the stake, now has a new permanent head - Olaf Scholz, while Joerg Kukies, the co-head of Goldman Sachs in Germany, was named deputy finance minister. That ended a hiatus of six months that started when Wolfgang Schaeuble stepped down last October. With several banks said to be eyeing Commerzbank as a way to boost their presence in Europe’s biggest economy, the government has a number of scenarios to choose from.

No Deal

No leading politician, either in government or in the opposition, has made the sale a priority. The bank’s share price is hovering at around 11 euros - less than half the price that the German state initially paid for it - meaning that any sale would crystallize a loss in the government’s accounts and potentially expose it to criticism over a perceived waste of public funds.

Nor does the government need the money. It has run a budget surplus for the past three years and can afford to wait for a trend of rising interest rates to improve Commerzbank’s outlook. Previous talks at the ministry about selling the stake usually kicked off with the government demanding about 2.3 billion euros, or around 25 euros per share, for its stake - and they usually didn’t progress much further, one person familiar with the process said.

But What If...

Governments such as the U.K. and the Netherlands have avoided making losses on their crisis-era investments in Lloyds Banking Group and ABN Amro by drip-feeding them into the stock market. However, Commerzbank’s low profitability (it has only paid one dividend since the crisis) makes a similar exit a more difficult proposition.

Suitors such as BNP Paribas and UniCredit have sat down with the government to express their interest, but none wants to meet its requirement on price, according to people briefed on those discussions. Yet many investment bankers think that the government may be persuaded to sell at a price as low as 17 or 18 euros per share. The finance ministry declined to comment for this article.

A European Project?

With new governments in France and Germany talking up their desire for deeper Eurozone integration, a tie-up with a French bank could suit both Merkel and French President Emmanuel Macron, sending a clear signal of political intent. Macron’s spokesman Christophe Castaner reacted favorably last year to speculation over a possible merger with BNP Paribas, although both he and German officials said it’s up to the banks to decide whether it makes business sense.

Bloomberg Intelligence’s Marta Bastoni also argues that Italy’s Unicredit would be a good fit, offering the chance to slim down expensive branch networks. But memories of the financial crisis could frustrate a cross-border deal: foreign banks were quick to pull back from the German market after 2008, severing credit lines to many “Mittelstand” companies, the backbone of the German economy. Giving up control over a bank that provides almost a third of Germany’s trade finance will be hard for German politicians.

How Germany Might Sell Its Commerzbank Stake: Four Scenarios

National Champion

Another possible investor is Deutsche Bank. The two were in merger talks less than two years ago, people familiar with the talks have said, and while those talks have been put on ice they could be revived. Private equity firm Cerberus last year rekindled speculation about a merger by buying stakes in both. For the present, Cerberus - like CEOs John Cryan and Martin Zielke - thinks that now is not the time, according to people familiar with the matter. ABN Amro analyst Tom Kinmonth argued in a note to clients in March that national mergers are more likely to deliver quick cost savings and synergies than cross-border ones. While such an option could mean big job cuts, politicians may fret less about the fate of high-paid bankers than about, say, auto workers. The Deutsche option would keep control of Commerzbank in Germany.

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