Germany gets timing wrong with Commerzbank sale
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam Proud
LONDON, Sept 4 (Reuters Breakingviews) -The German government can hardly be accused of rushing things with a planned divestment of its 16.5% holding in 16 billion euro Commerzbank CBKG.DE. Berlin has owned shares in the lender since the 2008 crisis, and may only initially offload 3% to 5%, Bloomberg reported on Wednesday citing people familiar with the matter. Still, the German authorities are probably selling too early.
The Federal Finance Agency, which manages the position for the government, on Tuesday evening said that Commerzbank’s situation had steadily improved in recent years and that it was therefore logical to reduce the holding. Unless the economic situation takes a sudden turn for the worse, such as a major recession, the implication is that Germany will keep offloading shares.
In one sense, it seems like an opportune moment to sell. Commerzbank’s stock has risen 130% in the past three years, compared with a 40% increase for closest rival Deutsche Bank DBKGn.DE. Investors have cheered the positive effect of higher euro zone interest rates on the bottom line, as well as a major cost-cutting effort under CEO Manfred Knof.
It’s still possible, however, that Berlin will regret the timing of the sale. First, Commerzbank’s valuation is still low in absolute terms, at around half forward tangible book value. Offloading shares now jars with analysts’ average forecasts, which envisage Knof pumping out a return on tangible equity of roughly 9% over 2025 and 2026 and 10% in 2027. If that trajectory becomes reality, the valuation would rise much closer to tangible book value, implying further upside for the shareholders.
There’s also the question of M&A. Right now, the government has a privileged role in negotiating terms and vetoing any deal with long-rumoured suitors like Deutsche and Italy’s UniCredit CRDI.MI. That influence shrinks with every share it sells. If it gets rid of the stake entirely, Berlin would have to rely on a much weaker set of regulatory tools to influence a deal. It would also miss out on any takeover premium a suitor would be likely to pay.
And taxpayers are not getting an adequate amount of money to compensate for that loss of influence. Selling 5% would raise less than 800 million euros, at current market prices. Even offloading the whole stake would be worth about 2.5 billion euros, equivalent to 0.1% of German government spending in 2023. Having waited this long, Berlin might be better off sitting tight.
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CONTEXT NEWS
The German government plans to sell 3% to 5% of Commerzbank, Bloomberg reported on Sept. 4, citing people familiar with the matter. It currently owns a 16.5% stake.
The Federal Finance Agency said on Sept. 3 that it intended to reduce its holding in the Frankfurt-based lender, without specifying how much it would offload. Eva Grunwald, member of the agency’s executive board, said that the bank’s situation had steadily improved since 2021, and that the logical response was for the government to begin exiting the position.
Shares in Commerzbank were down 0.8% to 12.73 euros as of 0729 GMT on Sept. 4, roughly in line with the performance of the Euro STOXX Banks Index.
Graphic: Commerz's price-book valuation has drifted up recently https://reut.rs/3MxgEEN
Editing by Francesco Guerrera, Streisand Neto and Oliver Taslic
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