July 16, 2013 2:50 pm

Commerzbank: silly season

Rationale for investing in German bank is questionable

Summertime, and the rumours are easy. This week, Commerzbank is in the frame. UBS, Santander and BNP Paribas have all been named as possible investors in the bank, potentially by way of the German government’s 17 per cent stake. This could be a case of wounded investors trying to get the share price back up – Commerzbank more than halved in the first half of the year but it is up 8 per cent this week. The idea is not ridiculous. European governments have been getting rid of their bank investments in the past few months. That said, a deal is politically tricky, with an election due in September. The state paid €5bn for its remaining stake. It is now worth just €1.2bn.

Commerzbank is not without its attractions for other banks. The Mittelstandsbank, the biggest contributor to group profits, would be one of the highlights. It generates a return on equity of 22 per cent and should do well if, as expected, the economic recovery accelerates next year. Buyers may also want closer links with the retail business.

Alternatively, they might just be after a bargain. Shares now trade at a measly 0.3 times tangible book value. It is tricky to find anything cheaper in Europe. That valuation suggests plenty of scepticism about Commerzbank’s assets, especially in the non-core book. But this week the bank managed to offload a €5bn portfolio of British property loans at just a 3 per cent discount to the book value. With the shares pricing in something far more dire, there is plenty of upside for anyone willing to take the plunge.

But there is no reason for such bravery to come from a rival bank. The 17 per cent stake would not give the buyer control, with all the cost savings that might entail, so there is little reason for other banks to take an interest. Commerzbank shares are available for any investor who wants them. These rumours should stay in the realm of summer silliness.

Email the Lex team in confidence at lex@ft.com

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