Wednesday 13 March 2013


Commerzbank, a German financial institute, 2nd largest

The sixth stock that I bought was another bank stock. This time the second largest German bank called Commerzbank. The management made just before the financial crash a serious error and decided to take over Dresdner bank. It was the classical management error of wanting to make their own little empire no matter what the costs would be for it.
The history of Dresdner bank was that back in 2000 it was taken over from the Allianz SE (the biggest insurance company in Germany and among the biggest ones in the world) and it had then 24 billion in assets. Allianz completely plundered the company and sold all the assets. Which left it with only around 5 billion € assets when Commerzbank decided to take it over. However Dresdner bank had a little investment banking part also that made well... how can one put this... a "small" loss of 6.3 billion €. So a bank with assets of 5 billion € making a loss of 6.3 billion € was taken over by Commerzbank. Everyone raise your hands and give the previous management of Commerzbank a big round of applauds!

So not only did Commerzbank pay for buying Dresdner bank they also receiced a nice loss from investment failures that had occured before they stepped in. And additionally the amount of bad papers from Dresdner bank was around 40 billion € and from Commerzbank it was 15.5 billion €. This meant that the Commerbank, which by this acquisition became the second biggest German bank, went practically belly-up. The German goverment stepped in and took then 25% shares to make sure it did not go bust as well as to protect it from being bought up from outside Germany.
To me this means that the company is pushed down for three reasons. Firstly because the entire financial industri with all banks are pushed down. Secondly because of the idiotic take-over of Dresdner bank and thirdly because the goverment is sitting on 25% of the shares.

The first time when I bought the stock in the end of June 2012 I managed to get them for 1.3 €. The stock then had a P/E of 1.2 and the P/B of 0.3. To me this meant that the stock was ridiculously cheap! I later on increased the quantity and I now have 2301 shares at a price of around 1.4€. Since I use this stock for birthday gifts for my nephews it will constantly decrease for me as a holding. Since the bank still is not very healthy they are not paying any dividends they are also restricted from doing so due to the 25% govermental shares so I can not use that as a sales rule.

Therefore this share will be sold sometime after the German goverment have left the company and the P/E should be more reasonable at around 20 before I step out.

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