Nov. 8 (Bloomberg) -- Commerzbank AG said it will invest 2 billion euros ($2.6 billion) in consumer and corporate banking and will probably withhold dividends for this year and 2013 as it set out a crisis recovery strategy. The bank was the biggest decliner on Germany’s DAX today.
Commerzbank will keep costs unchanged until 2014 and will repay its first three-year Longer-Term Refinancing Operation, or LTRO, to the European Central Bank in the first quarter. The announcement by Chief Executive Officer Martin Blessing today came as the lender reported a profit of 78 million euros for the third quarter, less than analysts had estimated.
Germany’s second-biggest bank hasn’t paid shareholders a dividend since 2008 and has come in for criticism for not providing a convincing strategy for cutting costs as it offloads sovereign debt and exits shipping and property units. Higher capital requirements from regulators and Europe’s debt crisis are forcing Commerzbank to reorganize.
“Commerzbank is hoping to grow its way to efficiency, which you cannot do in the current environment,” said Nick Anderson, an analyst at Berenberg Bank in London, in an e-mailed report to clients. “The new strategy does not acknowledge nor therefore address the structural causes of the crisis.”
The shares slumped 5.8 percent to 1.42 euros by 5:35 p.m. in Frankfurt. It was the biggest decliner on the 30-member DAX Index and on the Bloomberg Europe Banks and Financial Services Index, which tracks 38 financial stocks.
Commerzbank will reduce “non-core assets” by more than 40 percent by 2016, Blessing told investors at a meeting in Frankfurt. The shakeup will help the bank achieve targets of an after tax return on equity of more than 10 percent at the core bank and increased revenue will reduce its cost-to-income ratio, a key measure of profitability, to about 60 percent by that year, he said.
“There can be no return to ‘business as usual’ in the banking industry,” Blessing, 49, said in an e-mailed statement. “We want a new bank that unites modern technologies and traditional values.”
The bank’s third-quarter profit compared with a loss of 687 million euros a year earlier, when it wrote down 798 million euros of Greek debt holdings. It was expected to earn 83 million euros, according to the average estimate of nine analysts surveyed by Bloomberg.
Commerzbank said it will wind down its public finance, commercial real estate and shipping portfolios, bundled at the non-core assets unit, “essentially without any sales.” The business posted an operating loss of 476 million euros in the third quarter, the bank said.
Blessing said the lender will turn to consumer banking, increasing customers by 1 million to a total of 12 million and boosting operating profit there to 500 million euros in 2016 from 215 million euros in the first nine months of this year.
“They’re giving investors a growth perspective with their retail unit,” Dirk Becker, an analyst with Kepler Capital Markets in Frankfurt, said by telephone. “It’s tough to make money in German retail.”
Commerzbank will also make savings by restructuring its branch network and cutting jobs. Blessing didn’t say how many employees the bank will eliminate. It will incur expenses for the overhaul, according to the statement.
Blessing may fire 5,000 to 6,000 employees, Die Zeit newspaper reported yesterday.
Commerzbank had 56,287 staff at the end of the third quarter, a decline of 2,476 from a year ago, according to the earnings statement.
Bank officials are in negotiations with workers’ representatives, he said. Ver.di, a labor union for service industry workers, said yesterday Commerzbank shouldn’t fire employees to become more competitive.
The lender will also restructure its retail banking unit by investing 1 billion euros by 2016. Operating profit there slumped to 41 million euros in the third quarter from 71 million euros a year earlier, it said.
Blessing said he wants to attract new clients at its Mittelstandsbank corporate lending business. Third-quarter operating profit at the unit rose to 395 million euros from 344 million euros a year earlier. That beat the 346 million-euro average estimate of 10 analysts surveyed by Bloomberg.
“Despite the overall difficult market conditions we have achieved a solid result in the core bank,” Blessing said.
Commerzbank will have a core tier 1 capital adequacy ratio, a measure of financial strength, under phased-in Basel III rules of more than 9 percent through 2016, it said in the statement. The bank reported a core tier 1 ratio of 12.2 percent under current capital rules in the third-quarter earnings.
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