11 March, 2011

Germany Bank Mergers & Acquisitions (Commerzbank)

Photo: A Commerzbank AG branch in Kiel, Germany.

With special thanks to my very good friend "Vovchychko" of Germany, who gave me permission to use this photo. You can view his other photos by clicking on this link: http://www.flickr.com/photos/schneelocke/

Commerzbank AG

The Commerz- und Disconto-Bank in Hamburg was established in 1870 by a number of German merchants and private banks. As its name suggests, the bank’s mandate was to serve Germany’s burgeoning manufacturing and import-export sectors. In 1871, the bank was one of the founding members of Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft (Hamburg - South America Steamship Company, now known as Hamburg Süd).

In 1873, Commerz- und Disconto-Bank in Hamburg subscribed to a majority capital of the new London and Hanseatic Bank, establishing a presence in London, the then financial centre of the world.

In the 1890s, Commerz- und Disconto-Bank was a major backer of the construction of electric utilities in Nürnberg (Nuremburg) and Hamburg. In 1897, the bank took over Frankfurt-am-Main-based private bank Bankhaus J. Dreyfus & Co., including its Berlin branch. With the expansion outside of Hamburg, the bank formally dropped the “in Hamburg” reference from its name in 1898.

In 1905, Commerz- und Disconto-Bank’s head office was moved from Hamburg to Berlin when it took over the Berliner Bank.

When World War I broke out in 1914, the bank lost its stake in London and Hanseatic Bank. Needless to say, the War devastated normal lives and business across much of Europe.

Between 1917 and 1923, Commerz- and Disconto-Bank acquired more than 40 regional and private banks across Germany, the most important of which was the Mitteldeutsche Privat-Bank with its 90-branch network. When the transaction completed, the bank adopted the new name Commerz- und Privat-Bank.

Following the end of World War I, Germany went through a decade of economic upheavals which included the infamous hyper-inflation in the early 1920s. Still, between 1923 and 1924, the bank made acquisitions in the Netherlands and Latvia, and opened an office in New York in 1927.

Following the Wall Street Crash of 1929, the German economy, like many others in the Western world, went into a tailspin. Commerz- and Privat-Bank merged with Mitteldeutsche Creditbank in this same year.

The Great Depression in the early 1930s saw personal consumption, industrial output and international trade contracting, causing unemployment to soar to 30% in Germany. Then in May 1931, one of Austria’s largest banks, Credit-Anstalt, collapsed, sending shock waves across the world. As the entire German banking sector teetered on the brink of collapse, the government decreed that all banks be closed on 1931-07-13 and 1931-07-14 to stem panic bank runs. In 1932, the ailing Barmer Bank-Verein Hinsburg, Fischer & Comp. was merged into Commerz- und Privat-Bank; meanwhile, the Reich government re-capitalized Commerz- und Privat- by acquiring 70% of the bank’s enlarged capital. Between 1936 and 1937, the government re-floated Commerz- und Privat-Bank to private shareholders.

Under pressure from the new Nazi government, Commerzbank began to let go its Jewish staff in 1933. By 1938, all Jewish staff had been ousted from the bank. To comply with new discriminatory legislation, Commerz- und Privat- also took part in expropriating Jew-owned properties and stopped dealing with Jewish clients. Soon after World War II broke out in 1939, the bank commenced operations in German-occupied Netherlands, Belgium, the Baltic states and southeastern Europe. In 1940, the bank shortened its name to Commerzbank AG.

Following six years of intense fighting, 60-million deaths and utter devastation around the world, Germany, Japan and Italy were finally defeated in 1945. Commerzbank lost its operations in the Soviet zone of Germany (later East Germany), the occupied territories, as well as its head office in Berlin, as the former German capital was also split into the Soviet Zone (later East Berlin) and the American, British and French zones (later West Berlin). Of the 359 domestic branches in existence in 1940, 161 were lost to the Soviets. Even within the American, British and French zones (later West Germany), the Liquidation Commission broke up the large German banks (Deutsche, Dresdner and Commerzbank) into much smaller entities to ensure that they would never be big enough to finance a war machine again. Commerzbank was split into nine small separate banks in 1947. Meanwhile, in West Berlin, Bankhaus Holbeck KG began operations in 1949.

In 1952, the nine small banks were allowed to re-group into three regional banks, namely: Bankverein Westdeutschland (Düsseldorf), Commerz- und Disconto-Bank (Hamburg) and Commerz- und Credit-Bank (Frankfurt-am-Main). Meanwhile, Berlin’s Bankhaus Holbeck became Berliner Commerzbank. Between 1952 and 1955, the three regional banks opened their first post-World War II foreign representative offices in Amsterdam, Madrid and Rio de Janeiro. In 1956, Bankverein Westdeutschland was re-grouped as Commerzbank-Bankverein.

In 1958, Düsseldorf-based Commerzbank Bankverein took over Commerz- und Disconto-Bank and Commerz- und Credit-Bank. The new bank revived the Commerzbank AG name, which was previously in use between 1940 and 1947.

Commerzbank listed its shares on the London stock exchange in 1962, marking the bank’s first listing abroad. The bank then acquired a minority interest in Korea Exchange Bank in 1967. In 1968, Commerzbank and a number of other European banks jointly introduced a cheque-guarantee card, launching the Euro-Cheque product. During the 1970s, the bank began to actively re-build its former expertise in international corporate and public finance by opening branches in New York, London, Chicago, Paris, Brussels, Tokyo and Hong Kong.

In 1971, majority interests in real estate lenders Rheinische Hypothekenbank and Westdeutsche Bodenkreditanstalt were acquired. (Commerzbank first took a minority stake in Rheinische Hypothekenbank in 1960.) Commerzbank’s interest in Rheinische Hypothekenbank (commonly known as RHEINHYP) was gradually raised to almost 100% over the years. In 1974, the two real estate lenders were combined.

In the 1980s, Commerzbank expanded operations in the Netherlands and Switzerland, as well as acquired 10% of Spain’s Banco Hispano-Americano (1984) and 10% of Brazil’s Unibanco (1988). The end of the 1980s was marked by the 1989 fall of the Berlin Wall and the collapse of Communism in the Soviet Union and Eastern Europe. As soon as East Germany and West Germany re-unified in 1990, Commerzbank promptly opened branches in 50 former East German locations. In 1992, the West Berlin subsidiary Berliner Commerzbank was integrated into the parent bank. The bank also expanded into other former Eastern European countries such as Hungary and Czechoslovakia. In Poland, Commerzbank acquired a majority stake in Bank Rozwoju Eksportu (BRE) in 1994. In the same year, it also bought a 51% interest in Hypothekenbank in Essen AG.

In 1995, an on-line retail securities broker cominvest was established, which grew into Germany’s leading on-line broker.

Recent transaction(s):

  • In 2000, shortly after merger talks failed between Deutsche Bank and Dresdner Bank, Commerzbank and Dresdner Bank entered merger discussions but they also failed to conclude.
  • In 2002, Commerzbank merged its RHEINHYP holdings with Deutsche Bank’s and Dresdner Bank’s real estate lenders to form EuroHypo AG, in which all three German banks held a stake.
  • In 2005, Commerzbank bought out the 66.2% of EuroHypo AG that it didn’t yet already own for Eur 4.65-billion from its two other shareholders Deutsche Bank and Dresdner Bank. With the EuroHypo purchase, Commerzbank became the No. 2 bank in Germany. Prior to the sales, Deutsche Bank had owned 37.7% of EuroHypo, whereas Dresdner Bank had owned 28.5% of the real estate and public finance lender.
  • In 2007, Commerzbank sold its British-based asset management division Jupiter to its management and TA Associates for about Eur 1-billion (GBP 740-million). Jupiter had GBP 19.2-billion of assets under management.
  • Also in 2007, Commerzbank bought 60% of Ukraine's Bank Forum for Eur 435-million (USD $600-million). Bank Forum served 230,000 retail and 12,000 business clients through 230 branches.
  • Also in 2007, Commerzbank sold its Paris-based asset management firm Caisse Centrale de Reéscompte SA (CCR) to UBS for Eur 435-million.
  • Also in 2007, Commerzbank bought out the 49% minority interest in Hypothekenbank in Essen AG (known as Essen Hyp). Commerzbank had owned 51% of Essen Hyp since 1994. In 2008, Essen Hyp was integrated into Commerzbank's other wholly-owned commercial real-estate and infrastructure (public finance) lender EuroHypo AG.
  • In August 2008, Commerzbank agreed to buy the weakened Dresdner Bank from insurance giant Allianz SE for Eur 8.8-billion (USD $12.81-billion). Dresdner’s investment unit Dresdner Kleinwort had been badly hurt by the 2008 global banking crisis. The purchase price consisted of Eur 1.6-billion in cash, Eur 6.5-billion in Commerzbank shares, and the cominvest division valued at Eur 700-million. In addition, Commerzbank agreed to make a maximum Eur 975-million payment to Allianz to cover potential future losses from some sub-prime securities that Allianz was exposed to, bringing the potential total value of the deal to Eur 9.775-billion (USD $14.23-billion).
  • Following a turbulent summer which saw global financial asset prices tumbling, Commerzbank in November 2008 revised its agreement to buy Dresdner Bank. Commerzbank had already acquired 60% of Dresdner in August for Eur 1.6-billion in cash, Eur 2.75-billion in stock and the cominvest division valued at Eur 700-million. Instead of issuing another Eur 3.75-billion of stock and insuring Eur 975-million of potential sub-prime losses, Commerzbank immediately acquired the remaining 40% of Dresdner from Allianz for Eur 1.65-billion in cash. The amendment reduced the value of the entire Dresdner Bank acquisition to Eur 6.7-billion (USD $8.93-billion). Dresdner Bank’s 1,000 branches would become Commerzbank though branch closures were expected.
  • In January 2009, the German financial stabilization fund SoFFin agreed to guarantee up to Eur 15.0-billion (USD $20.34-billion) of a new Commerzbank’s bond issue in exchange for new ordinary shares representing 25% of the enlarged capital for Eur 1.77-billion.
  • Commerzbank received Eur 8.2-billion (USD $11.2-billion) of capital from SoFFin in November 2008 with no voting privilege.
  • In September 2009, Commerz returned the remaining Eur 5-billion (USD $7.2-billion) of unused debt guarantees to SoFFin. Commerzbank tapped and issued Eur 5.0-billion of government-backed bonds in early 2009. The remaining Eur 10-billion of debt guarantees were not needed and returned to the German government in late 2009.
  • In October 2009, Commerzbank sold Kleinwort Benson Private Bank to Belgian private-equity firm RHJ International for GBP 225-million (USD $365-million). Kleinwort Benson had GBP 5.4-billion of assets under management and another GBP 15.7-billion of assets under administration.
  • In March 2010, Commerzbank acquired another 26.25% in Ukraine’s Bank Forum for an undisclosed amount. Commerz had held 63% of the bank since early 2008.
  • In early 2012, as a condition to receive state aid from Germany, Commerzbank agreed to shut down its EuroHypo public finance and mortgage subsidiary by 2014.  Now known as Hypothekenbank Frankfurt, the former EuroHypo suffered billions of losses from bad loans made during the boom times of 2000s.
  • In October 2012, Commerzbank sold its 96% stake in Ukraine's Bank Forum to Ukrainian Smart Group for an undisclosed amount.  Ukraine has been suffering from severe social, political and economic turmoil due to the separatist uprising from its Russian minority in the eastern part of the country.
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