GERMAN BANKING

Cerberus Takes a Bite Out of Commerzbank

commerzbanklogo
Cerberus feeds on hard-luck companies. Picture source: Reuters

The US hedge fund Cerberus Capital Management takes its name from the three-headed hound of Hades in Greek mythology and is known more for its bite than its bark.

Germany’s second-largest bank, Commerzbank, is likely to feel that bite in coming months now that Cerberus has taken a 5-percent stake in the troubled bank.

“Troubled” is a word that often fits the Frankfurt-based bank, which is nearly 150 years old. In the past few decades, it has repeatedly flirted with disaster as an also-ran in a saturated market dominated by its fellow “Grossbanks,” Deutsche and Dresdner.

But it was Commerzbank that swallowed up Dresdner at the onset of the financial crisis in 2008, as insurer Allianz looked for a buyer for its wholly-owned unit. In the meantime, Deutsche has its own set of problems from years of missteps.

Cerberus is not squeamish about throwing around its weight as a shareholder.

The US hedge fund, run by co-founder Steve Feinberg with former US Treasury Secretary John Snow as chairman, invests in distressed companies with the aim of cleaning them up and selling them at a profit. It’s not for nothing that the fund chose the hound of Hades as its mascot because it is not squeamish about throwing around its weight as a shareholder.

Cerberus already has an investment in the German regional bank Südwestbank via its stake in Austria’s Bawag. The Austrian bank recently acquired full ownership of the Stuttgart-based Südwestbank and is reportedly interested in acquiring the Wüstenrot building society in Germany.

The US hedge fund broke into German headlines in 2007 when it swooped in to acquire the majority in US automaker Chrysler, putting a definitive end to the short-lived Daimler-Chrysler combination.

With its 5-percent stake Cerberus becomes the third-largest shareholder in Commerzbank, after the German government, which has a 15-percent stake as a result of the 2009 bailout, and US asset manager Blackrock, which has somewhat more than 5 percent.

Commerzbank had no further comment beyond the announcement of its new shareholder. Cerberus declined to comment.

But financial circles in Germany don’t expect Cerberus to seek a majority in the German bank, or even cross the 25-percent threshold, which would subject the hedge fund to supervision by bank regulators.

The German government is expected to sell its stake at some point, though not before the parliamentary elections in September. Given that Deutsche Bank, like many other European banks, is dealing with its own restructuring issues, Berlin may have few choices as a buyer. Whether it would want the relatively healthy French banking giant BNP-Paribas as a partner for Commerzbank and a competitor to Deutsche is an open question.

In its latest bout of troubles, Commerzbank under its new chief executive Martin Zielke has cut its dividend, hinted at a loss in the second quarter, and embarked on yet another restructuring that will entail more than 7,000 layoffs with all their associated expense.

Among other things, Mr. Zielke has scaled back the bank’s ambitions, no longer seeking to compete with the big global institutions in investment banking but opting instead for the relatively boring retail business.

The focus in business lending has shifted to small and medium-sized companies. The bank has also scaled back its profit goals, targeting only a 6-percent return on capital by 2020, a far cry from the fatter profits prior to the financial crisis.

How that fits in with Cerberus’s objectives remains to be seen. The situation of banks in Europe has improved in recent months. Italy has bailed out some of its problem banks and a shift to higher interest rates by the European Central Bank holds out the prospect of better margins in lending. This makes an investment in a European bank more attractive, especially in a country like Germany that enjoys relatively strong growth.

Cerberus has previously shown an interest in German banks. Two years ago, it signaled an interest in Postbank when Deutsche Bank put the former post office subsidiary on the block. But it never came to serious talks because the €4.5 billion that Cerberus was willing to pay fell short of Deutsche’s expectations. In the end, Deutsche merged the Postbank operations into its own.

 

Michael Brächer  in Frankfurt, Jan Hildebrand in Berlin and Robert Landgraf reported this story for Handelsblatt. Darrell Delamaide in Washington, DC  adapted this story for Handelsblatt Global. To contact the authors: hildebrand@handelsblatt.com, braecher@handelsblatt.com, landgraf@handelsblatt.com

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