-- Commerzbank warns that second-half net profit won't reach
first-half level
-- Says loan-loss provisions goal looks ambitious, while costs
under control
-- Bank addresses chronically unprofitable retail banking; fears
of branch closures, jobs
(Adds detail throughout.)
By Ulrike Dauer
FRANKFURT--Germany's Commerzbank AG (CBK.XE) Thursday warned
that net profit will be lower in the second half than in the first,
saying that challenging market conditions will continue to mute
customer activity, weigh on revenue and put further pressure on the
loan book.
The cautionary tone came despite a surge in second-quarter net
profit to 275 million euros ($336 million), from EUR24 million a
year earlier, helped by the absence of a big Greek sovereign-debt
write-down felt a year earlier.
For the half, the bank, in which the German government still
holds a 25%-plus-one-share stake, reported net profit of EUR644
million, down from EUR1.01 billion in the year-ago half.
The bank said it had a cushion of EUR2.8 billion above European
capital requirements at the end of June, up from EUR1.1 billion at
the end of March, accomplished by reducing risk-weighted assets
further, retaining earnings and improving the capital structure by
a number of measures such as by paying eligible staff part of their
variable remuneration with shares.
At 1122 GMT, Commerzbank shares were down EUR0.06, or 4.7%, at
EUR1.222, underperforming the wider market. CreditSights analysts
said the bank's earnings position remains weak compared with peers,
noting its cautious outlook statement and its "chronically
unprofitable" retail branch banking business.
The bank said it will speed up the restructuring of its retail
operations, given the deteriorating market conditions. The result
of a strategic review, which some fear could lead to branch
closures and job cuts, will be announced at an investors day Nov.
8. Retail banking makes up about one-third of revenue in the
bank.
The second strategic focus will be on advancing the run-down of
portfolios in the new "non-core asset segment," into which it
transferred a substantial amounts of assets in the second
quarter.
Quarterly operating profit was EUR451 million and Core Tier 1
capital ratio was 12.2% of risk-weighted assets.
Last year, Commerzbank's second-quarter net profit was hampered
by a EUR760 million impairment on Greek government bonds, which
eroded net profit to EUR24 million and operating profit to a mere
EUR55 million.
The bank also said it is reshuffling responsibilities among
management board members, which became necessary after the transfer
of a substantial amount of assets into the new NCA unit.
It said that its full-year goal for loan-loss provisions of
EUR1.7 billion was "increasingly ambitious" in an environment
that's lacking customer and investor momentum in the investment and
lending business, which is weighing on net interest and net
commission income and isn't expected to reverse before the end of
the year. After the first six months, loan-loss provisions were
EUR616 million.
Operating profit in the retail banking segment fell to EUR126
million in the first half from EUR195 million in the same period a
year earlier. In the second quarter, it was only EUR14 million,
down from EUR79 million.
Excluding the Comdirect online bank, the private clients
business made a loss in the second quarter, Chief Financial Officer
Stephan Engels told a conference call.
"All in all, the operating profit in the private customers
segment is not satisfying," Mr. Engels said. "...Given that
revenues remained below expectations due to the market environment,
we will advance the strategic development of the segment." He
declined to be more specific ahead of Nov. 8.
The crisis is hurting all European peers. Last week, Deutsche
Bank AG (DB), which has a substantially stronger standing in
investment banking than Commerzbank, said it has identified EUR29
billion of additional potential risk-weighted asset cuts and
capital-building measures that could help it avoid needing to raise
capital. It also said it wants to cut costs by EUR3 billion, a plan
that includes slashing 1,900 jobs, mainly at its investment bank
and related back-office positions outside Germany.
Commerzbank itself already shed numerous non-core assets, most
recently in Russia and Ukraine, basically reducing the CEE business
to its 70%-owned Polish BRE Bank SA (BRE.WA). In June, the bank
announced a U-turn regarding its business structure, saying--just
five days prior to the planned launch of the new segment--that it
will exit commercial property and ship financing business, citing a
bleaker view of overall business prospects, the crisis and tougher
capital rules for banks ahead.
Effective Thursday, the bank will transfer the entire commercial
real estate and ship financing business--a total volume of around
EUR172 billion to the new non-core assets unit, with the aim of
winding it down.
-Write to Ulrike Dauer at ulrike.dauer@dowjones.com