FRANKFURT Commerzbank CBKGk.DE shares leapt as much as 17.6 percent on Wednesday as investors bought back stock sold in anticipation of a share placing by Germany's bank bailout fund, which was completed earlier in the day.
Hedge funds have bet heavily on a fall in the German lender's shares in recent weeks, partly also in anticipation of a planned capital increase. Roughly 12 percent of the shares have been used for such bets, according to data provider Markit.
Having slumped from a high of almost 13 euros in January, the stock has bounced back strongly from a low of 6.96 euros on Tuesday. At 1055 GMT, the shares were up 14.1 percent at 7.94 euros, the biggest rise by a European blue-chip stock .FTEU3.
"That is crazy. I have no other explanation for it than short covering", a trader said.
Volumes in early trading of Commerzbank shares made up about 60 percent of all trade in German bluechip companies .GDAXI.
Earlier on Wednesday, German bank rescue fund Soffin sold a 15 percent stake in Commerzbank, worth 625 million euros, at a price of 7.00 euros per share. Soffin will use the proceeds to participate in Commerzbank's capital increase.
After the share placement and the capital increase, Soffin's stake in Germany's second-biggest lender will be reduced to roughly 17 percent from 25 percent at present.
The placement price was slightly above the theoretical ex-rights price at Tuesday's close of 6.96 euros and at the high end of the price range of 6.60 to 7.00 euros.
On Tuesday, Commerzbank said it was offering 556 million new shares - roughly the same amount it currently has outstanding - at a 55 percent discount in a 2.5 billion euro capital increase aimed at repaying funds it owes to the German government and insurer Allianz (ALVG.DE).
In a 2008 bail-out, the German government took a 25 percent stake in Commerzbank and also granted it billions of euros in a debt-equity hybrid dubbed a silent participation.
By repaying the silent participation held by the state and insurer Allianz, Commerzbank will save annual interest expenses of roughly 200 million euros.
Commerzbank is joining a slew of European banks tapping shareholders for fresh money, including Germany's bellwether Deutsche Bank (DBKGn.DE) and Russia's second-largest bank VTB (VTBR.MM) as well as Greek banks.
The banks are taking advantage of bullish equity markets as European shares trade at five-year highs, while bank shares .SX7P have returned to around the two-year high they had reached in late January.
($1 = 0.7705 euros)
(Reporting by Arno Schuetze and Hakan Ersen; Editing by Mark Potter)