Commerzbank AG, Germany’s second-biggest lender, canceled annual Christmas parties for investment bankers and other employees as part of its efforts to cut costs, three people with knowledge of the situation said.

The bank, based in Frankfurt, announced the cancellation about three weeks ago, saying such a holiday event wouldn’t be appropriate in the current market environment, the people said, declining to be identified because the information isn’t public.

The company also told its mid- to upper-level employees, or non-tariff workers, there would be no raises for 2012 and the investment bank has frozen hiring for businesses not generating revenue, said two of the people. Commerzbank’s investment-banking unit has traditionally held Christmas parties each year, including in 2008 after the collapse of Lehman Brothers Holdings Inc., two of the people said.

Commerzbank spokesman Armin Guhl said “accelerated cost management” is one of the measures being used to reach the higher capital requirements, including the revision of all external consulting services and purchased services. He declined to comment on other specific moves such as the party cancellation.

Commerzbank, which needed a government bailout after the credit crunch in 2008, must raise 5.3 billion euros ($6.9 billion) in capital by mid-2012 after marking down the value of its sovereign debt in a European stress test. The lender is trying to lower costs, shed assets, sell businesses and retain earnings to reach capital requirements without tapping public funds.

RBS Party

Chief Executive Officer Martin Blessing, 48, who spent the last three years trying to free the bank from more than 18 billion euros in government aid, has pledged to avoid taking state funds. Chief Financial Officer Eric Strutz said on Dec. 8 that “we stand by our intention not to make use of additional public funds.”

The firm offered to repurchase 600 million euros of hybrid instruments on Dec. 5 as it boosts capital.

Royal Bank of Scotland Group Plc also canceled Christmas parties for its investment bankers this year as the government- owned lender tries to reduce costs. The bank will stop subsidizing holiday events and has banned staff entertainment for the rest of the year, Chris Kyle, chief financial officer of RBS’s investment bank, wrote in an e-mail to employees obtained by Bloomberg News on Oct. 14.

Commerzbank has fallen 74 percent this year in Frankfurt trading, the worst performance in the country’s benchmark DAX index. The gauge for German equities has dropped almost 17 percent in 2011.