Feb. 14 (Bloomberg) -- Commerzbank AG, Germany's second- largest bank, said fourth-quarter profit fell 44 percent on writedowns related to U.S. subprime assets.

Net income declined to 201 million euros ($293 million) from 359 million euros a year earlier, the Frankfurt-based company said in a statement today. The bank, which beat the 177 million- euro median estimate of 11 analysts surveyed by Bloomberg, fell 7 percent in Frankfurt trading.

Commerzbank reduced the value of subprime-related investments by 248 million euros in the quarter, bringing total markdowns for the year to about 583 million euros. The worst U.S. housing market in a quarter century has led to more than $145 billion in writedowns and loan losses at the world's biggest financial institutions.

``The outlook for 2008 is very cautious as with almost every bank in the current environment,'' said Konrad Becker, a Munich- based analyst at Merck Finck & Co. who has a ``hold'' rating on the shares. The gains from taxes and minority stakes ``boosted fourth- quarter profit and thus the figure does not knock one's socks off,'' he said.

The German bank posted full-year net income of 1.92 billion euros, up 20 percent from a year earlier. It wants to raise its dividend to 1 euro for 2007 from 75 cents and doesn't currently plan to buy back shares. Net income in the fourth quarter was boosted by a 60 million-euro gain from minority stakes, compared with a loss of 72 million euros a year ago. The company paid 20 million euros in income taxes, down from 182 million euros.

`Good Start'

``After getting off to a good start we are confident for 2008,'' Chief Executive Officer Klaus-Peter Mueller, who will be replaced by board member Martin Blessing in May, said in the statement. ``If we are spared significant negative surprises, we will again be able to reach our good 2007 results. If markets allow, we can even exceed these results.''

Commerzbank fell 1.48 euros, or 7 percent, to 19.75 euros in Frankfurt. It has declined 33 percent in the last six months, cutting its market value to 13 billion euros. That compares with the 23 percent drop in the Bloomberg Europe Banks and Financial Services Index and a 19 percent slide at Deutsche Bank AG.

Commerzbank invested about 1.2 billion euros in subprime mortgages and had asset-backed securities totaling 19.9 billion euros, including collateralized debt obligations, according to a presentation from September. Mueller said today that the company can't rule out further writedowns, adding that any further charges would be ``manageable.''

Writedowns, Impairments

In addition to the 583 million euros in markdowns, the bank also posted pretax value impairments of 290 million euros for subprime investments and about 100 million euros for asset-backed securities in its so-called revaluation reserves, which don't affect earnings, the company said.

Possible first-quarter writedowns will be less than the 248 million euros booked in the fourth quarter, Chief Financial Officer Eric Strutz said in a Bloomberg TV interview.

The slowdown of the more than $2 trillion CDO market follows record downgrades last year in mortgage-linked securities, which repackage assets into new securities with varying risks.

``The subprime concerns have overshadowed the relatively strong performance of the corporate customer and retail business,'' Britta Paech, who helps manage about $35 billion at Hamburg-based M.M. Warburg, said before the earnings.

Deutsche Bank, Germany's biggest bank, last week reported a smaller-than-estimated decline in fourth-quarter profit after having 44 million euros in writedowns on leveraged loans, bringing its total to 2.3 billion euros in 2007. Zurich-based UBS AG said today it wrote down $13.7 billion in the quarter.

`Volatile Time'

Commerzbank posted pretax profit of 161 million euros in the quarter, missing analysts' estimates of 261 million euros.

``The first weeks of the year have already shown that 2008 will not be straightforward, but instead will be a rather volatile time for banks and stock exchanges,'' Mueller said in a speech in Frankfurt today. ``My concern is less the subprime crisis and much more the dampened economic outlook.''

Mueller reiterated that the company is interested in buying Deutsche Postbank AG, Germany's biggest consumer bank by clients, if it is put up for sale. It could afford the bank without a capital increase and the two companies haven't held talks yet, he added. German postal operator Deutsche Post AG, which owns 50 percent plus one share of Postbank, has signaled it may sell the bank this year.

Deutsche Bank is also interested in the lender's 14.6 million customers and more than 850 branches. Most European countries have at least two leading banks and Commerzbank has shown it can do retail and integrate, Mueller said.

Acquisition Plans

Commerzbank reiterated plans to search for acquisition opportunities in central and eastern Europe. The German lender in September bought a majority stake in Ukraine's Bank Forum JSC for $600 million to add 12,000 corporate clients and 230,000 retail customers. The bank may consider further acquisitions in the ``mid- level three-digit millions,'' Strutz said.

Net interest income before risk provisions, the biggest revenue contributor, fell 2.3 percent in the fourth quarter to 973 million euros and commissions slipped 7.9 percent to 735 million euros. Trading income was 73 million euros, compared with 286 million euros a year earlier, while costs in the quarter were unchanged at 1.4 billion euros.

The bank set aside 61 million euros for risky loans, less than the 79 million euros a year ago. Full-year loan-loss provisions declined 45 percent to 479 million euros, helped by lower default risks as the German economy grew 2.5 percent in 2007 and unemployment fell to a 15-year low.

Pretax profit at the Mittelstand unit that serves mid-sized companies, Commerzbank's most profitable division, fell 17 percent to 259 million euros and had pretax return on equity of 30 percent.

`Market Crisis'

``Sooner or later the financial market crisis will hit medium- sized businesses and bigger companies, Commerzbank's most important customers,'' said Lutz Roehmeyer, who helps manage about $20.5 billion at Landesbank Berlin Investment in Berlin, including Commerzbank shares.

The private and business customers unit posted a 67 million- euro profit after a loss a year ago. Division head Achim Kassow is trying to increase the number of clients to more than 6 million by 2009 from 5.5 million by offering high-interest bank accounts, boosting advertising and hiring.

The securities unit, known as corporates and markets, posted a quarterly loss of 204 million euros because of subprime-related writedowns and higher risk provisions.

Real Estate Unit

Profit at the commercial real-estate division, which includes business from Eurohypo AG, fell to 46 million euros from 152 million euros, hurt by writedowns on residential mortgage-backed securities. Commerzbank bought Eurohypo, Germany's biggest property lender, in 2006.

The public finance and treasury unit, which is being reorganized, reported a loss of 132 million euros because of charges at its Hypothekenbank in Essen AG subsidiary. The bank announced last month it will fold EssenHyp into Eurohypo as it tries to boost profit at the unit.

Mueller, who is also president of Germany's BdB commercial banks association, said the country's private lenders are ``committed to their obligations'' to help stabilize IKB Deutsche Industriebank AG. The lender received a third bailout yesterday after investing in U.S. subprime mortgages.

Commerzbank isn't interested in buying IKB and hasn't held takeover talks with MLP AG, Germany's third-biggest financial- services broker. The company isn't interested in bidding for Societe Generale SA, the French bank that suffered the worst trading loss in banking history, because it is ``too big,'' Mueller said.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net; To contact the reporter on this story: Oliver Suess in Munich at osuess@bloomberg.net

Last Updated: February 14, 2008 11:41 EST