Exclusive: Commerzbank in state aid talks

The aim is to reach an agreement in principle by the Christmas holidays, coalition sources said.

COMMERZBANK (CBK.XE) 25 percent-owned by the German government, wants to avoid forcible recapitalization but needs to find 5.3 billion euros ($7 billion) in capital by mid-2012 to meet European Banking Authority (EBA) capital rules.

How Germany could help strengthen the lender's balance sheet remains open, coalition and banking sources said.

On Monday, Commerzbank stood by its commitment to avoid taking more help from Berlin which would tip it nearer to full nationalization.

A spokesman reiterated the bank's stance from last Thursday, when Chief Financial Officer Eric Strutz said: "We stand by our intention not to make use of additional public funds."

One option is transferring parts or the whole of Eurohypo's risky assets to a "bad bank" within Germany's bank rescue fund SoFFin, these people said.

By unloading the risky assets from its loss-making real estate finance unit on to the state, Commerzbank could free up some 5 billion euros in capital.

Eurohypo is widely seen as too big to sell, with total assets of more than 200 billion euros.

German ruling coalition sources said the question of whether Commerzbank could be forcibly recapitalized remains open.

Banks need to inform regulators by January 20 how they will plug gaps in their balance sheet to achieve a core Tier 1 capital ratio of 9 percent by mid-2012, as required by the EBA.

Chief Executive Martin Blessing said he will not ask the state for more cash, while Germany's second-largest bank cannot tap shareholders: its 1.22 euros share price is well below the 2.18 euros subscription price of a 5.3-billion euro rights issue in June.

($1 = 0.7567 euros)

(Reporting by Kathrin Jones, Alexander Huebner, Philipp Halstrick, Edward Taylor; Editing by David Hulmes)

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