Net income in the three months through September climbed to 77 million euros ($104 million) from 67 million euros a year earlier, the Frankfurt-based company said in a statement on its website today. That beat the 32 million-euro average estimate of six analysts surveyed by Bloomberg.
Commerzbank Chief Executive Officer Martin Blessing is grappling with losses from soured shipping and commercial real estate loans as he seeks to lower costs by eliminating employees. The lender faces added scrutiny as the European Central Bank begins a review of the assets of the euro area’s biggest banks this month and takes over supervision next year.
“Their business with mid-sized companies has felt the weaker environment and shipping and commercial real estate loans are helping to drive risk provisions,” Stefan Bongardt, an analyst with Independent Research GmbH in Frankfurt who recommends investors sell the stock, said before the earnings were published. “The bank may also seek to head off the ECB’s review by taking a stricter view of its portfolio.”
The bank paid 3 million euros of tax in the quarter compared with 118 million euros in the same period a year ago. Pretax profit dropped to 103 million euros from 211 million euros, while operating expenses fell to 1.69 billion euros from 1.73 billion euros, it said.
Commerzbank rose 0.2 percent to 9.32 euros in Frankfurt trading yesterday, reducing its decline this year to 13 percent. That compares with an 17 percent increase for the 44-member Bloomberg Europe Banks & Financial Services Index.
Loan-loss provisions rose to 492 million euros in the third quarter from 430 million euros a year ago, Commerzbank said in the statement. The bank’s common equity Tier 1 capital ratio, used by regulators to gauge financial strength, rose to 8.6 percent from 8.4 percent at the end of June.
“We have increased the capital ratios, lowered costs, considerably reduced risks and non-strategic portfolios, and successfully launched our growth initiatives,” Blessing said in the statement. “Thus we have further enhanced the stability of the bank.”
Standard & Poor’s cut Commerzbank’s debt rating to A-, four levels above junk, in May saying poor economic conditions mean it will struggle to boost earnings sustainably and will be vulnerable to “its high-risk lending concentrations.”
Commerzbank said yesterday that two members of its executive board will step down by the end of the year. Blessing, appointed in 2008, is downsizing top management as part of a plan to eliminate 5,200 jobs by 2016 to help boost profitability.
The bank increased capital for the fifth time in four years in May to help repay 18.2 billion euros of state aid it took in 2009 and bolster reserves to meet stricter regulatory standards.
Commerzbank is selling and winding down shipping and commercial real estate loans as well as sovereign and municipal debt holdings to raise capital levels and comply with conditions for its bailout.
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