FRANKFURT Commerzbank AG (CBKG.DE) moved to fend off government intervention on Monday, saying it would buy back 600 million euros ($806 million) of its own debt at a discount to shore up its capital.
The partly state-owned bank, which received an 18.2 billion euros bailout in the wake of Lehman Brothers' collapse, is believed to need some 5 billion euros by mid-2012 to meet new capital rules, sources have told Reuters.
The bank hopes to meet the capital needs without taking further state aid, mainly by selling assets.
A raft of other European banks are unveiling so-called "liability management" measures to bolster capital ratios.
Barclays (BARC.L) offered to buy back up to 2.5 billion pounds of its bonds late on Monday, at discounts of between 5.5 percent and 30 percent of the face value.
It could raise up to 650 million pounds, according to Reuters calculations, although that is based on a full take-up, which is unlikely.
Commerzbank said it would seek to repurchase five different hybrid securities for between 40 percent to 52.5 percent of their nominal value - above the 35 percent to 43 percent market rate - but at a significant discount to the original issuance price.
Under IFRS accounting rules Commerzbank can book the purchase as a profit, using the gain to bolster its capital position. The bank will pay for the transaction using liquidity reserves, the lender said.
The Frankfurt-based lender said buying back the hybrid bonds -- a form of debt with equity-like properties -- would generate between 0.2 and 0.3 percent of Core Tier 1 capital.
Commerzbank's announcement came as Germany, which holds 25 percent of it, moved to reinstate a state rescue fund for banks, sources in the government and the ruling coalition said on Monday.
Analysts were skeptical that the bank's action -- which comes as others are attempting similar maneuvers -- would be enough to plug the hole in its funding, and its shares closed down 4.1 percent at 1.43 euros.
"We expect further capital measures to be announced," DZ Bank analyst Matthias Duerr said in a note on Monday.
The bank's core tier one capital ratio was 9.4 percent at the end of the third quarter, but its definition differs from that of the European Banking Authority, which has demanded banks meet a core tier one ratio of 9 percent by mid-2012 in a bid to shock-proof them against a worsening of the financial crisis.
The EBA's capital definition is more stringent because it asks banks to revalue European sovereign debt holdings on their portfolios.
At the end of September, Commerzbank had 13 billion euros in exposure to the sovereign debt of Greece, Ireland, Italy, Portugal and Spain.
The EBA is expected to announce this week the amount of capital each bank must raise -- going by the results of a second stress test of 70 banks in the EU -- as well as the guidelines for doing so.
Meanwhile, the German government is doing the legal legwork to reinstate its Soffin bank rescue fund as soon as possible and could even reactivate it before Christmas, sources in the government and the ruling coalition said on Monday.
"We are eager to set up the legal framework to reinstate the Soffin as soon as possible," said a finance ministry spokesman, while coalition sources said the plan was for the cabinet to decide on this before the holiday.
The tender offer for Commerzbank's hybrid debt starts on December 5 and is expected to end on December 13, Commerzbank said. Joint dealer managers are Commerzbank, Credit Suisse CSGN.VX and JP Morgan (JPM.N).
Other banks to announce liability management plans to reduce the need to raise equity under the EBA's recapitalization plan include Spain's Santander (SAN.MC) and Sabadell (SABE.MC), which on Friday said investors could exchange preference shares for new shares that can be counted as core capital, totaling 2 billion euros and 850 million euros respectively.
Bankia (BKIA.MC) followed on Monday with an offer to buy back up to 750 million euros of subordinated debt and preferential shares, and Portugal's Banco Espirito Santo also made an exchange offer to boost its capital.
Britain's Lloyds (LLOY.L) last week offered to exchange 4.9 billion pounds of debt that could boost its capital by over 1 billion pounds, and BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) have also raised capital in the same way.
($1 = 0.7446 euros)
(Additional reporting by Helene Durand, IFR Markets, and Steve Slater in London; Editing by Sophie Walker and David Cowell)