Frankfurt A commitment to the German banking sector looks different: The US financial investor Cerberus sells a good 46 million shares in Deutsche Bank and Commerzbank because it apparently no longer believes in a significant price increase in the Frankfurt financial institutions. The withdrawal is also an admission that the restructuring of Germany’s two largest private banks is more difficult and protracted than the Americans thought when they joined in 2017.
Cerberus’ considerations to buy the state’s stake in Commerzbank from the federal government are now likely to be over. After the block of shares was sold, it was an illusion that the financial investor would take over the state’s 15.6 percent stake, a person familiar with the topic told the Handelsblatt.
In the autumn, according to financial circles, Cerberus Germany boss David Knower signaled his willingness in confidential discussions to consider acquiring the state stake in Commerzbank if the new federal government was ready to sell.
The FDP has spoken out in favor of the federal government, which has held a stake in the bank since the rescue in the financial crisis in 2008 and is still the largest shareholder. With the withdrawal of Cerberus, Finance Minister Christian Lindner is now breaking away a put option.
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The Liberals have announced that they will evaluate the status and progress of the bank’s restructuring and then examine all options. This includes a sale of Commerzbank shares on the market or – as part of a merger – to another financial institution. However, insiders do not expect a state exit until the second half of the legislative period at the earliest.
At Commerzbank, joy prevails
At Commerzbank, Cerberus has repeatedly pushed for greater cost reductions and triggered the resignations of CEO Martin Zielke and Supervisory Board Chairman Stefan Schmittmann with a protest letter in the summer of 2020. Many within the money house are therefore happy about the withdrawal of the fund, which is named after the three-headed hellhound from Greek mythology.
“I see the partial exit of Cerberus with a laughing and a crying eye,” said Verdi union secretary Stefan Wittmann, who sits on the supervisory board of Commerzbank, the Handelsblatt. “I am glad that these activists, who always wanted to tell us how to run a German bank, will no longer play a major role in the future. On the other hand, we don’t know who is buying the shares – so there is a certain amount of uncertainty. “
Wittmann sees the debate as to whether and when the state will exit Commerzbank as relaxed. “The major shareholder, the federal government, has not had a calming influence on the bank in recent years – on the contrary: under its aegis, there have been repeated changes in strategy,” complains the unionist. “We now have to implement our strategy and put Commerzbank on a stable footing – nobody will buy us beforehand anyway. Then politicians have to assess whether they want to have an independent German SME financier or not. “
Commerzbank and Deutsche Bank did not want to comment on the partial exit of Cerberus. No comment was received from the financial investor himself.
Cerberus makes a loss of around 150 million euros
Cerberus had sold 21 million Deutsche Bank shares and 25.3 million Commerzbank shares on Monday evening, according to the Morgan Stanley bank commissioned with the placement. The share of the financial investor in Deutsche Bank has fallen from three to 1.99 percent, and that of Commerzbank from five to 2.99 percent.
The shares of both banks then came under pressure on Tuesday. Deutsche Bank papers fell at times by more than two percent, Commerzbank stocks by more than four percent.
Cerberus also sold the shares because the prices of both institutes had recently increased significantly. The Commerzbank share has gained more than 15 percent since the beginning of the year. “It is logical to reduce the position now and take the price level with you – even if it is below the initial price,” said an insider.
Since Cerberus values its funds at market prices, losses have already been booked. Compared to the entry-level prices, however, the Americans made a loss of around 150 million euros on sales.
The divestments are also a portfolio adjustment because minority stakes in banks actually do not fit Cerberus’ approach, the insider said. The financial investor joined Deutsche Bank and Commerzbank in 2017 because of their low ratings. In the meantime, however, Cerberus has come to realize that, in retrospect, neither investment was a clever move.
Professor: “That was his expensive lesson for Cerberus”
“That was his expensive lesson for Cerberus,” wrote Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt’s Goethe University, on Twitter. Many observers would never have understood the investments in both institutes. “For Commerzbank, the uncertainty remains as to how things will proceed.”
According to Brühl, a merger between Deutsche Bank and Commerzbank is “finally off the table” with the partial exit of Cerberus. The financial investor had always campaigned for mergers and in 2019 also supported the start of the merger between Deutsche Bank and Commerzbank. In the end, however, the merger did not materialize.
According to Andreas Thomae from Deka Investment, the work of Cerberus for the shareholders of Deutsche Bank and Commerzbank was positive, “because Cerberus was a constructive-activist investor who put pressure on the kettle and ensured more decisive restructuring steps in both banks”.
Due to the unfavorable entry point, however, the commitment to Cerberus itself was not worth it. Now the Americans have “seen the chance to get away with these two investments with a black eye,” emphasized Thomae. The exit also has to do with the usual time horizon of a financial investor.
Greens: Remodeling of Commerzbank must go on
From the point of view of the Green finance expert Lisa Paus, the withdrawal shows that the desired modernization of Commerzbank did not happen at the speed that the US hedge fund wanted. “Commerzbank is quoted at less than 50 percent of its book value and still fails to generate its cost of capital,” complains Paus. “The restructuring of the bank must therefore continue on the basis of a clear strategy even after Cerberus has withdrawn.”
Commerzbank boss Manfred Knof, who has been in office since the beginning of 2021, wants to cut 10,000 jobs worldwide by 2024 and close 340 branches in Germany. In this way, Knof wants to achieve a return on equity of seven percent and thus create the basis for an independent future for the 151-year-old bank.
Deutsche Bank is already further with its restructuring and is “very confident” of achieving a return of eight percent on material equity in 2022. Investors, however, have great doubts whether the money house will achieve this goal.
Cerberus bought around 62 million shares in each of the two most important German financial institutions in 2017. At the start, Deutsche Bank’s paper cost around 15 euros and Commerzbank’s around eleven euros – around three euros more than today.
On Monday, Morgan Stanley placed Deutsche Bank shares for EUR 12.06 per share and Commerzbank shares for EUR 7.50. The financial investor took in 443 million euros.
Experts think further sales of Cerberus are likely. According to Morgan Stanley, the financial investor has only set a period of 45 days during which he does not want to throw any further blocks of shares from either bank on the market. Holding periods of at least three months are customary.
More: How the scandal about Cerberus and Commerzbank came about