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September 01, 2000

Commerzbank steps up European cooperation
and strengthens its capital base

Commerzbank, Italy's leading insurance group, Assicurazioni Generali, Trieste, and its German subsidiary AMB Aachener und Münchener Beteiligungs-AG have finalized a new framework agreement, substantially extending their cooperation for distrib-uting products, which has existed since November 1998. In a response to the single European financial and currency area, which will be completed as from 2002 with the issue of banknotes and coins, the strategic interests of the two partners are to be coordinated more closely, especially in asset management. The first concrete steps will cover private equity and international private banking. The development and portfolio management of new, innovative products will take place on a coordinated basis in the future. Larger acquisitions will be examined with the aim of a joint purchase.

In retail business, more intensive marketing activities in Germany will ensure that mutual business potential is explored more quickly and thoroughly. For this purpose, so-called centers of competence are being established initially at the major units of both Commerzbank and the Aachener und Münchener Group (AM Group). At Commerzbank branches, specialists of the AM Group will cooperate with branch staff to ensure that Commerzbank customers are offered optimal services in all insurance matters. In addition, advice will be provided on all aspects of home loan savings and construction finance. It is planned that initially 650 advisers from the AM Group will be active in the course of the next three years at up to 500 Commerzbank offices. At the same time, banking centers will be created on the insurance side at 250 units of the AM Group, where specialist personnel will offer insurance policy holders assistance related to aspects of banking, with the emphasis on investment and portfolio advice. In addition, home loan, consumer finance and payment services will be offered.

As a flanking measure for the close business cooperation, Commerzbank plans a capital increase in different tranches totaling more than 2bn euros. This will expand the bank's capital base from 11.8bn to around 14bn euros. After completion, Generali will hold almost 10% of Commerzbank. Italy's top investment bank Mediobanca will also take over further Commerzbank shares, increasing its stake to two per cent. In the future, a good fifth of the bank's equity will be held by associated financial partners abroad.

As a first step, Generali will take over roughly 17m shares for cash at a price closely oriented to the market price and around 9m shares through the transfer of 30m BSCH shares to Commerzbank by way of a contribution in kind. This will raise Commerzbank's shareholding in BSCH to 2.3%.

"The capital increase underlines the new quality of our European partnerships. It provides us with the necessary scope for maintaining our dynamic expansion in Germany and Europe," said Martin Kohlhaussen, chairman of the bank's management board. The highest priority is now being given to expanding cross-border business relations, especially in euro-zone countries. But acquisitions, primarily in asset management, within and outside the euro-zone, are also being considered. In Germany, Commerzbank intends to increase its overall market share in both retail and corporate customer business. The focus is on further extending electronic distribution channels.

Aside from the above, BSCH and Commerzbank are in advanced negotiations regarding another tranche of the capital increase, partly for cash and partly against a contribution in kind. In this connection, Commerzbank intends to acquire CC-Bank, Mönchengladbach, currently 100%-owned by BSCH. With about one million customers, CC-Bank is one of Germany's market leaders in the consumer credit business, focusing on the finance of automobile purchases.

Mr. Kohlhaussen also stressed the basic need for the bank's equity to increase in line with the expansion in its business volume. He added that Commerzbank intends to meet the conditions for admission as a financial holding company in the United States. For this reason, the bank's target is a core capital ratio of 6.5%, compared with its current level of almost 6%.

Commenting on the close cooperation with Generali, Mr. Kohlhaussen pointed out that, according to official studies, the AM companies with 13.5 million customers and Commerzbank with around 4 million retail customers, will be present in 25% of German households. This strong market presence should now be used systematically. "The new distribution structures and the more intensive direct local co-operation should enable us to achieve our first interim goal even after three years: namely the acquisition of a million new customers through our joint efforts," Mr. Kohlhaussen confidently predicted.