Commerzbank is planning to cut 9,600 jobs and scrap its dividend “for the time being” as part of a plan drawn up by new chief executive Martin Zielke to boost the flagging profitability of Germany’s second-biggest lender.
The overhaul comes at a time of upheaval for the German banking sector, with the financial strength of Deutsche Bank, Germany’s largest lender, under scrutiny and the profitability of the sector as a whole under pressure from a suffocating combination of excess capacity and record-low interest rates.
As part of Commerzbank’s new strategy, which must still be approved by the supervisory board, the lender will reorganise its structure, replacing its current four divisions with two: one serving corporate clients, the other serving retail and small business customers.
Its Mittelstandsbank, which caters to the small and medium-sized companies that make up the backbone of the German economy, will be combined with its investment banking division to focus on corporate clients. At the same time, its trading activities will be scaled back in an attempt to reduce the volatility of Commerzbank’s earnings.
The reorganisation will prompt writedowns of about €700m, which will push the bank to a loss in the third quarter. Commerzbank still expects to make a “small net profit” for the year as a whole, despite rising provisions from its exposure to the shipping industry, which is in the grip of a prolonged downturn.
The bank added that its core tier one capital ratio — a closely watched measure of financial strength which stood at 11.5 per cent at the end of June — had strengthened during the quarter, and would be “nearly 12 per cent” by the end of the year. Shares in the bank were down 0.5 per cent at €5.97 on the news.
Alongside the 9,600 job cuts, Commerzbank also intends to create about 2,300 positions, meaning it will achieve a reduction of about 7,300 — or about a seventh — in its 50,000-strong workforce.
The job cuts will help Commerzbank cut its cost base from €7bn to €6.5bn at the end of 2020. “I am pleased that they made cost-cutting a key part of the plan, but it is a shame they didn’t go a bit further, and cut the cost base to €6bn,” said Neil Smith, an analyst at Bankhaus Lampe in Düsseldorf. “I would also have liked to see them exit their shipping portfolio sooner, and fund it by selling their stake in Comdirect.”
Overall, the restructuring will cost “in the region of” €1.1bn, Commerzbank said. To cover this, the bank will suspend its dividend for the time being — having only reinstated it last year after a seven-year hiatus in the wake of the financial crisis.
As a result of the new strategy, Commerzbank hopes to boost its return on tangible equity to “at least 6 per cent” by 2020. If the interest rate environment improves, the bank thinks that a return of at least 8 per cent “will be achievable”. It is aiming for a core tier one capital ratio of 13 per cent by 2020.
Get alerts on Commerzbank AG when a new story is published