* Sells 118 million shares in exchange for hybrid equity
* State fund SoFFin maintain 25 percent equity stake
* Deal seen boosting core Tier 1 ratio by 35 bps -sources
* Commerzbank shares dip 2.6 percent
(Adds price of share sale, details)
By Ludwig Burger
FRANKFURT, Jan 13 (Reuters) - German state-backed lender Commerzbank sold 626 million euros ($823 million) of shares on Thursday to meet stricter capital requirements being forced on banks worldwide.
The bank exchanged hybrid bonds for new shares in an innovative move that improves the quality of its capital. Global regulators are urging banks to create larger capital buffers after the global financial crisis, to give depositors more protection.
The move still leaves Commerzbank, Germany's second biggest lender, a long way from redeeming billions in government funding, however.
Under the deal, Credit Suisse will buy the Commerzbank hybrid instruments in return for 118.1 million new shares, or 10 percent of the bank's current shares, which it has sold on to institutional investors.
The shares were sold at 5.3 euros apiece, a 6 percent discount to Wednesday's close and near the top of the 5.15-5.35 euro guidance range at the start of the sale process.
Commerzbank shares were down 2.6 percent at 5.49 euros at 1450 GMT, as the issue of new shares is dilutive for existing shareholders. The STOXX Europe 600 Banking Index rose 2 percent. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For an interactive graphic on capital raising by European banks click here: http://r.reuters.com/paz26r For a BreakingViews column click on ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
CORE CAPITAL BOOST
Banks' capital buffers will have to be of much better quality and quantity from 2013 under a global accord known as Basel III.
Rival Deutsche Bank raised 10.2 billion euros in October to finance a deal and meet the new Basel rules, which increased the pressure on Commerzbank to bolster its balance sheet.
Commerzbank will make a capital gain of near 340 million euros from the transaction, by swapping the new shares for the hybrid securities at a price below par but above the market price. It should boost its core Tier 1 capital ratio by about 35 basis points to near 10.25 percent, two people familiar with the matter said.
The bank does not plan to raise any more capital in the first quarter, a spokesman said.
"This transaction marks an important step in optimising Commerzbank's capital structure. The transaction will not have any noticeable impact on the Bank's Tier 1 capital ratio, but it will result in an increase of Core Tier 1 capital," Commerzbank said.
DZ Bank analyst Matthias Duerr said the improvement in the bank's capital structure was only "marginal" and would barely help to redeem the 16.4 billion euros injected into the bank by state in the wake of the financial crisis.
"It will hardly affect the bank's underlying capital need to repay (the state's) silent participation," he said.
Banks are expected to partly meet new Basel requirements by issuing hybrid debt such as contingent capital which converts into equity when a bank's capital is eroded.
But there has been widespread debate among regulators over how this conversion should be triggered so that losses can be absorbed quickly without needing public aid.
Germany's bank rescue fund (SoFFin) plans to keep its equity stake in Commerzbank at 25 percent plus one share, the bank added. As a result, part of SoFFin's silent participation will be converted into shares.
The share offer was "multiple times" covered, Credit Suisse said. It sold the shares alongside Citigroup, Goldman Sachs and UBS. (Additional reporting by Alexander Huebner, Jonathan Gould, in Frankfurt; Steve Slater and Kylie MacLellan in London; editing by Sophie Walker)