Germany to Reduce Stake in Commerzbank (FRA: CBK) Amid Share Price Rally

Valuation of Government Stake Reaches Approximately €2.5 Billion

The German government has announced its intention to reduce its stake in Commerzbank (FRA: CBK) following a significant increase in the bank’s share price. This move marks the beginning of the government’s exit strategy from the bank, which it had previously rescued during a financial crisis over a decade ago.

The country’s finance agency, responsible for managing government assets, made the announcement after the markets closed on Tuesday. While the agency confirmed the decision to sell a portion of its 16.5% stake, it did not specify the exact amount or the timing of the sale. The government’s stake in Commerzbank is currently valued at approximately €2.5 billion, based on the current market price.

Commerzbank, like many other European financial institutions, has benefited from a series of interest rate hikes initiated by the European Central Bank (ECB) starting in 2022. The bank's stock has surged by around 20% this year, reaching its highest level in more than a decade earlier in May.

The head of the finance agency commented on the positive economic trajectory of Commerzbank, noting that the improvement in the bank’s financial health is the key driver behind the government’s decision to start reducing its stake. Despite this, the government does not plan to fully divest its holding in the near term, according to sources familiar with the situation.

The outlook for the banking sector, however, may face challenges as the ECB is anticipated to lower interest rates again in an upcoming policy meeting. Additionally, concerns over Germany’s economic struggles have heightened fears of increased corporate defaults, which could lead banks to bolster their risk provisions.

Germany’s decision to sell down its stake aligns with similar actions by other European nations, which have been reducing their holdings in financial institutions acquired during the global financial crisis. The broader European banking sector has experienced gains, largely driven by the higher interest rate environment.

The government had been considering the sale of its Commerzbank stake for some time, with earlier reports suggesting it was waiting for a continued rise in the stock price. The shares were trading at approximately €8 two years ago, compared to around €13 currently.

Commerzbank plays a significant role in Germany’s economy, particularly in providing credit to the country’s export-oriented businesses. The German government remains the bank’s largest shareholder with its 16.5% stake, followed by other institutional investors.

The government’s initial acquisition of the stake in Commerzbank during the 2008-2009 financial crisis was aimed at maintaining financial market stability. The current reduction in the stake is seen as a testament to the bank’s recovery and the strength of Germany as a financial center.