Commerzbank Shares Tumble on Government Stake Sale

Hannelore Foerster | Bloomberg | Getty Images

The German government will cut its stake in bailed-out lender Commerzbankto less than 20 percent from 25 percent as part of a raft of measures to strengthen its capital and comply with new bank rules.

Commerzbank shares fell 12 percent on Wednesday after the news broke.

Commerzbank shares tumbled on the news, falling 14 percent on Wednesday. The country's second biggest lender said on Wednesday it will raise 2.5 billion euros ($3.26 billion) in a capital increase to repay the German government and insurer Allianz part of a bail-out it received during the financial crisis.

As part of the plan, Germany's bank bailout fund Soffin will convert part of its 1.6 billion euros worth of non-voting capital into shares and sell them to investors between mid-May and the beginning of June. Commerzbank said it would repay the rest with cash proceeds from the share sale.

The measures will raise Commerzbank's tier 1 capital ratio to 8.6 percent.