Commerzbank profits down 63%

German lender Commerzbank posted a 63 per cent fall in quarterly profit after shrinking its business to strengthen its capital base, which now comfortably meets European Union requirements.

"We have again made good progress with our strategic goal of consistently deleveraging the balance sheet and further strengthening the capital base," said chief executive Martin Blessing.

Germany's second biggest lender said it was €1.1 billion above a capital target of €5.3 billion set by the European Banking Authority, the European Union's banking watchdog.

Commerzbank said first-quarter net income fell to €369 million compared with a forecast for €416 million in a Reuters poll. Its shares were up 1.7 per cent at 8.40 am Irish time.

The bank, which received an €18 billion bailout in the financial crisis, has strengthened its balance sheet by shedding risky assets, hiking capital and converting debt instruments into equity.

Commerzbank said it intended to repay the bailout by 2014 "in pieces or in total" depending on the capital position.

Its first-quarter earnings were hit by the Greek debt swap, weaker investment banking and the absence of a one-off effect which inflated earnings in the 2011 period.

Commerzbank's new chief financial officer Stephan Engels said he expected the euro zone crisis to continue to weigh on earnings. He reiterated that the bank intended to post a solid operating profit in 2012 in its core business, which comprises corporate lending, private customer, investment banking and eastern European units.

It does not include the bank's asset-based finance unit that lost €4 billion in 2011, mainly as a result of stricken property lender Eurohypo.

While peers like Deutsche Bank, British group Barclays and French back SocGen had seen investment banking results bouncing back strongly, operating profit at Commerzbank's Corporates & Markets unit fell 88 per cent to €30 million, hit by a €160 million accounting charge for revaluing its own debt.

The first quarter is typically the strongest for investment banks and can set the tone for the year.

The Mittelstandsbank unit, a cash cow that specialises in corporate lending to small and mid-sized German firms that form the backbone of the economy, saw operating profit rise 12.5 per cent to €487 million.

Separately, more than 100 London-based bankers scored a rare victory over bonuses when a judge ruled that Commerzbank breached its legal duties by failing to honour payout pledges worth around €52 million.

After a protracted legal battle that has lasted more than two-and-a-half years, Commerzbank said it would seak leave to appeal against the High Court decision.

"The bank believes that the decision to reduce discretionary bonuses in light of €6.5 billion of losses at Dresdner Kleinwort for 2008 was responsible and justified," a spokesman said following the verdict.