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Last updated: November 4, 2011 7:53 pm
Commerzbank is calling a temporary halt to some international lending to meet stricter capital requirements for European banks and has scrapped next year’s profit target as it grapples with the fallout from the eurozone crisis.
Germany’s second-largest bank by assets revealed a quarterly loss after writing down almost €800m ($1.1bn) of Greek exposure. It will temporarily suspend new lending that is not related to its home market or Poland, where it owns a subsidiary, and suspend new business at Eurohypo, its property finance unit.
The lending freeze highlights a retrenchment by banks and the risk of a credit crunch for borrowers. Eric Strutz, chief financial officer, said that his bank had to focus on supporting the German economy.
With curbs on new loans and measures including asset sales Commerzbank aims to reduce risk-weighted assets, currently €244bn, by as much as €30bn, helping it to meet capital ratio targets set by the European Banking Authority, a regulator that conducted “stress tests” on European banks.
The authority calculates Commerzbank may need to close a €2.9bn capital deficit to meet the tougher ratios required next June.
Because of the way capital ratios are calculated, banks can meet targets by cutting their balance sheets as well as by raising new capital.
Announcing a net quarterly loss of €687m, Commerzbank said that its operating profit in the nine months to the end of September was just €344m (€1.1bn). “We continue to be committed to our original operating profit target of €4bn for the group, but on account of the market environment we will be unable to reach this target next year,” said Martin Blessing, chief executive.
Commerzbank’s latest writedown means its Greek exposure has been written down by 52 per cent, following the latest internationally co-ordinated rescue deal for Greece agreed in October.
The bank’s exposure to so-called “peripheral” European states, also including Italy, Ireland, Portugal and Spain, has been cut by a fifth this year to €13bn and will be further reduced.
Commerzbank, which remains a quarter state-owned after a rescue in 2009 following its acquisition of Dresdner Bank, does not intend to ask for government funds to boost its capital. But Michael Rohr, an analyst at Silvia Quandt, said that it was vulnerable. “Effectively closing down the bank on new business will have a negative impact on customer behaviour and loyalty also in core markets like Poland [and] Germany . . . Ultimately, we still fear that Commerzbank would have to be recapitalised by the German state in a worst-case scenario,” he wrote in a note.
Commerzbank said that its core bank – including lending to private and corporate customers, as well as its investment bank and its businesses in central and eastern Europe – were all profitable, with combined operating profit of €851m compared with €205m in the same quarter of 2010.
The bank said that it had begun the refinancing it requires for 2012, having funded its needs for this year several months ago.
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