UPDATE 1-Commerzbank to raise up to 3 billion euros of capital

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(Updates with details, background)

FRANKFURT, May 26 (Reuters) – Commerzbank on Tuesday laid out plans that will allow the German bank to raise up to 3 billion euros ($3.29 billion) in capital.

The move makes it one of the first major European banks to announce plans to raise new capital since the onset of the coronavirus pandemic in the region.

Commerzbank, the country’s second biggest lender, said it would issue the securities, known additional tier 1 (AT1) bonds, gradually and make a decision on the timing of the first round at a later date.

Bettina Orlopp, Commerzbank’s finance chief, said the securities would allow 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 highest risk debt that banks can issue. The bonds, also known as Co-Co bonds or contingent convertibles, are used to meet regulatory requirements and to act as a protective layer that can absorb losses in times of trouble.

They were designed in the wake of the 2008 financial crisis to try to ensure investors, rather than taxpayers, would be on the hook if a bank ran into financial difficulties.

Banks have typically repaid such bonds at the first opportunity and issued new debt to replace them. But analysts believe many lenders will now pass up the chance.

British bank Lloyds was the latest European lender to take this option last week. ($1 = 0.9117 euros) (Reporting by Tom Sims and Abhinav Ramnarayan; editing by Emma Thomasson and Jane Merriman)

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