EU says it must examine German aid for Commerzbank

BRUSSELS, Belgium - EU regulators refused Wednesday to give Commerzbank AG an immediate all-clear for a German government capital injection that would help it ride out losses from the financial crisis.

Germany's second-largest bank by assets struck a deal Monday to get up to 23.2 billion euros ($29.6 billion) in government help to boost its capital as part of a wide German rescue package for banks starved of liquidity.

But EU spokesman Jonathan Todd said the European Commission believes the Commerzbank bailout goes beyond the German rescue plan — and can't be cleared automatically — because the government may be overpaying for the stake it will buy in the bank.

"This particular capital injection for Commerzbank will have to be examined by the Commission," he told reporters.

This could delay the bailout — and could force the bank and the government to change the terms of the deal if the EU believes the current plan breaks EU state subsidy rules.

Todd said the EU understands that Commerzbank is to receive 8.2 billion euros ($10.5 billion) and will give the German state two slices of capital — an 8.5 percent stake for the first capital increase and 5.5 percent for a second top-up.

"At first sight these figures do not appear to be in line with the German bank scheme," he said. "That scheme provides that the minimum remuneration for such capital must be at least 10 percent."

Todd said the EU had to investigate to make sure banking bailouts don't distort a level playing field by giving one bank an unfair advantage over rivals without a state subsidy.

The German government rejected the EU criticism, saying the purchase price for its 'silent participation' in the bank is higher than similar capital injections by Austrian, French or Dutch governments that received a stake of less than 8.5 percent in return.

Commerzbank sought the bailout after swinging into a net loss in the third quarter as it wrote down 898 million euros ($1.1 billion) in losses from the collapse of U.S. investment bank Lehman brothers and the bankruptcy of major Icelandic banks as turmoil swept financial markets.

It also ran up losses on commercial real estate and structured products that have drastically dropped in value on fears that the complicated investments are partly based on the U.S. subprime housing market where many debt payments may default.

Alongside the capital increase from the German government's stabilization fund, Commerzbank is also seeking a state guarantee of up to 15 billion euros ($19.4 billion) to guarantee its debt.

Commerzbank, which focuses on lending to small and medium sized businesses, is one of several German institutions that has asked for help from the 500 billion euro ($642 billion) bailout package Chancellor Angela Merkel's government passed last month.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.