Germans to Repeat US Banking Mistakes?

Saturday, January 10th, 2009

Ah yes, as I observed in a post a few days ago, when it comes to state funds made available to prop up failing banks, the German bank bailout demand is low. But “low” does not have to mean “non-existent,” and in fact on Thursday the German government made use of the Sonderfonds Finanzmarktstabilisierung (“Special Fund for Financial Market Stabilization,” or Soffin) it had established to provide Commerzbank with €10 billion in exchange for taking up a 25% ownership stake. More precisely, of that €10 billion €1.8 billion actually buys that equity quarter-stake while the remaining €8.2 billion goes to a “silent participation” that gains no voting rights. By the way, at roughly the same time Commerzbank also took advantage of that other facility offered by Soffin – namely State debt guarantees – to bring in another €5 billion in new capital via a guaranteed bond-issue.

If you were to use your imagination to put yourself in the German federal government’s place – say, if you were a German taxpayer in whose name all this money was being spent – you might very well wonder what those civil servants in charge of the Soffin were thinking by accepting in exchange for the lion’s share of that €10 billion amount a mere “silent participation.” After all, it’s clear that insisting on a 100% active participation would have resulted in the purchase of the entire bank, with money to spare. (Do the math: that €1.8 billion bought a 25% interest, yet constituted not even 25% of the €10 total spent.) Instead, the remainder of that money gains for the government the “silent participation” that is in effect a loan, charging 9% interest. (more…)

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