Commerzbank is considering spinning off its holdings of “crisis-hit” sovereign debt into a government-supported “bad bank,” the FT reports.The bank will be forced to raised nearly $4 billion to meet more stringent EU bank regulations, and it’s facing problems doing that in the open market.
The move would cause German taxpayers to shoulder the burden of sovereign bonds worth $17.2 billion.
The Brussels-based bank Dexia faced similar issues earlier this year, causing it to seek French and Belgian government support and split up in a bid to get its finances in order. We found in July that Commerzbank had exposure to PIIGS debt worth 462% of its common equity, second only to Dexia outside the euro periphery.
If this report is true, investors could begin to hope that this–as well as deteriorating economic conditions and borrowing costs–could lead to a slow change in German public opinion about what kind of action is necessary to stem the eurozone crisis.
SEE HOW OTHER BANKS STAND: 20 Banks That Will Get Crushed If The PIIGS Go Bust >