Where the majority of the financial institutions around the world struggle to maintain operations, Germany’s Commerzbank is planning to raise up to $3.31 billion (Dh12 billion) in capital.
It would be one of the first primary European banks to declare plans to raise new capital since the start of the coronavirus pandemic in the region.
Commerzbank, the country’s second-biggest lender, announced it would gradually allot securities, called additional tier 1 (AT1) bonds and will decide on the timing of the first round later.
Bettina Orlopp, Commerzbank’s finance chief, said the securities would enable the bank to “respond to the additional business opportunities that have arisen for us in the context of the coronavirus crisis”.
AT1 bonds are some of the highest-risk liability that banks can circulate. The bonds, also known as Co-Co bonds or contingent convertibles, are utilized to satisfy regulatory obligations and to act as a protecting layer that can assimilate losses in times of difficulty.
They were invented after the 2008 financial crisis in an attempt to ensure investors rather than taxpayers would be on the hook if a bank ran into financial troubles. Banks have typically repaid such bonds on the first occasion and published new debt to substitute them. But analysts understand that many lenders will now pass up the chance.
British bank Lloyds was the latest European bank to exercise this option last week.