Following today's end of day rumor being a dud (and non-existent due to the habituation nature of the market), the closing news is more unpleasant than Europe would have liked to set the overnight mood, and comes to us via the FT (yes, that FT), which states that, as long speculated both here and elsewhere, "the German government has begun preparations for a possible state bail-out of Commerzbank." The plan would be activated if CBK is unable to figure out a way to fill a €5.3 billion shortfall in the next 30 days, which in reality will likely turn out to be far greater when all of the bank's dirty laundry is exposed for all too see. And with German banks by far the most sensitive to any perceived "tipping points", since it is the German state whose job it is to bail out the world's biggest economic block, it becomes obvious why letting doubts appear about the stability of German megabanks would likely not be a "good thing."
German chancellor Angela Merkel’s cabinet on Wednesday agreed a bill to reinstate a state-backed bank rescue fund next year, a move that could pave the way for state aid to Commerzbank, Germany’s second-largest bank by assets.
Among the measures in the bill are provisions for BaFin, Germany’s financial regulator, to force banks to accept state help if it thinks a bank’s plans to raise capital are insufficient.
Officials in Berlin are privately sceptical that Commerzbank can keep to its pledge to shore up its capital without using more state funds. The bank received more than €18bn of aid during the financial crisis and remains 25 per cent state-owned.
“Under the old regime, BaFin could only step in when the existence of the bank was in danger,” said one government official. “Now it can act when it sees a danger for the entire financial system and the confidence it rests on.”
There is more explaining the history of just how CBK ended up in its predicament, but for the most part it is all widely known.
As it is widely known, certainly be ZH readers, that Commerzbank is truly one of Europe's worst banks... Just after Landesbank Berlin, Credit Agricole (which today sacked thousands of unlucky souls) best known for having the highest 3 month USD Libor each and every day in the BBA self-reporting panel, Deutsche Bank and, of course, Credit Suisse, which also fired a few token individuals in New York earlier...