Commerzbank, still haunted by its mid-crisis purchase of Dresdner Bank, could do without the ghost of Greek sovereign debt exposure. But, as a signatory of the Institute of International Finance’s Greek debt restructuring, it had to take a €760m pre-tax bad loan charge, creating a 93 per cent fall in second-quarter net profit (from last year) to €24m. But the writedown by the second-biggest German lender is not all that scary; it is more a blot on an improving copybook. Even so, Commerzbank’s shares, already the worst performer of any big European bank this year, suffered a 7.8 per cent drubbing.
Further exposure to the eurozone’s periphery still lurks in its books. Its €2.2bn Greek debt exposure is down by 27 per cent since December, but still equates to about 11 per cent of estimated full-year tangible book value, UBS notes. Its risk on Italy and Spain is higher, at €8.7bn and €2.9bn respectively.
But Commerzbank has raised enough capital and cut enough risk-weighted assets to achieve a core tier one capital ratio of 9.1 per cent, excluding €2.7bn of support from Germany’s Soffin bail-out fund. It has raised all the funding it needs for the year. And the profit turnround continues in its core bank, thanks to strong interest and trading income, a 9 per cent fall in costs from last year, and bad loan provisions that were half of consensus expectations. The recovering domestic units mirror the rebounding German economy.
Despite market turmoil, Martin Blessing, chief executive, reaffirmed the bank’s €4bn pre-tax profit target for 2012. At a 57 per cent discount to book value, the share price ignores upside potential from asset sales and the integration of Dresdner. The stock is a cheap bet on a domestic banking turnround story (not unlike Lloyds Banking Group in the UK). Investors should treat the latest sell-off as a blessing in disguise.
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