Commerzbank braced for extended euro crisis

Fri, Aug 10, 2012, 01:00

COMMERZBANK, GERMANY’S second-largest bank, is braced for a worsening of the euro zone crisis and has given a grim profit outlook, warning it may not pay a dividend in 2013.

The bank, which is 25 per cent owned by the German state, said it would restructure its retail business and continue to clear out toxic assets in response to sliding profits.

The bank’s second-quarter group net profit dropped to €275 million, missing analysts’ forecasts of €388 million as retail and investment banking revenues slumped and provisions for bad shipping loans spiked. It warned that second-half profits would be lower still.

“The greatest downside risk remains an uncertainty shock from an escalation of the sovereign debt crisis – ie the collapse of the monetary union,” said Commerzbank in its quarterly report, adding it thought that risk was higher now than last autumn.

Against this background, Commerzbank expected the net profit in the second half of the year to be “significantly below” the net profit of the first six months, said chief financial officer Stephan Engels, adding it was becoming tougher to pay a dividend for 2013.

The bank has no plans to pay a dividend for 2012.

After pulling back from shipping finance, commercial real estate and public sector lending, Commerzbank said it would overhaul its retail branch network as clients were steering clear of higher margin services.

Germany’s retail banking market is highly competitive and industry experts say that Commerzbank – which bought rival Dresdner bank in 2008 – still has not focused enough on costs cuts and could easily slash another 20 per cent of staff.

Commerzbank said it would present a new strategy on November 8th. In the first half of the year it focused on fulfilling new capital rules, designed to help the financial sector weather the euro zone storm.

The bank, which received an €18 billion bailout in the wake of the financial crisis and collapse of Lehman Brothers, has spent years restructuring as Greek debt writedowns and a slowing euro-zone economy hurt efforts to recover and build capital to meet new European rules. – (Reuters)