Commerzbank AG, the German bank that got 18.2 billion euros ($23.8 billion) in state aid, reported a loss for the second consecutive quarter after booking costs associated with firing staff.
The net loss of 94 million euros in the first three months of the year compared with a profit of 355 million euros a year earlier, the Frankfurt-based bank said in a statement today. That beat the average estimate for a 153.7 million-euro loss of seven analysts surveyed by Bloomberg as the lender’s corporates and markets unit boosted earnings.
Chief Executive Officer Martin Blessing is reducing employees across the firm and asking shareholders to contribute to a 2.5 billion-euro capital increase to repay the German government and insurer Allianz SE. Blessing said today that the reorganization will start bearing fruit in 2014 as the bank sees revenue pressure, higher provisions and costs this year. He hasn’t paid a dividend since the financial crisis.
“The company is essentially doing the right things given the circumstances,” Otto Waser, chief investment officer at Research & Asset Management AG in Zurich, said in an interview with Bloomberg Television, adding that he’s uncertain about the quality of Commerzbank’s assets and capital position. “This is a difficult story.”
Commerzbank rose 1 percent to 10.92 euros by 10:09 a.m. in Frankfurt trading, valuing the company at 6.4 billion euros. The stock has slumped 24 percent this year compared with an 8.4 percent gain in the 40-member Bloomberg Europe Banks and Financial Services Index. Five capital increases since 2008 have erased more than 93 percent of the bank’s share price, making it the worst performing financial company in Europe outside of Ireland and Greece.
In addition to cutting as many as 6,000 jobs by 2016, Blessing, appointed five years ago, is shutting unprofitable shipping and real estate units to help reverse the company’s fortunes. Commerzbank said it booked a 493 million-euro charge in the first quarter for restructuring such as cutting staff.
The bank made “considerable progress in the consistent reduction of our non-strategic activities,” Blessing said in the statement. “The clear focus this year lies on the implementation of the strategic agenda. The positive effects from this should increasingly become visible from the coming year onwards.”
Operating profit at the corporate clients unit, known as the Mittelstandsbank, fell 33 percent to 325 million euros on lower revenue and higher loan-loss provisions. The private customers unit saw earnings slump 49 percent to 70 million euros as revenue fell and provisions rose. The corporates and markets division reported a ninefold jump in operating profit to 271 million euros as the market environment improved and customer activity increased. The company also booked a gain of 25 million euros at the securities unit related to the valuation of its own debt.
“The drastic decline in earnings at the Mittelstandsbank is disappointing as this is the business that people own Commerzbank for,” said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux with a reduce rating on the stock. “Commerzbank managed to build up an investment banking business that works for them, but that’s not a reason to buy the shares.”
The firm’s non-core assets unit, where it bundles public and commercial real estate and ship financing, had an operating loss of 87 million euros, compared with a loss of 454 million euros in the first quarter of 2012. Total non-core assets were lowered by 7.3 billion euros since the end of 2012 to about 143 billion euros.
Angry shareholders criticized Blessing at an annual general meeting on April 19, saying their investments had all but evaporated. Several called on the management to resign. Blessing’s predecessor Klaus-Peter Mueller, who made investments in property and shipping that later turned sour, is still employed by the bank as chairman of the supervisory board, responsible for overseeing operations and making changes to the executive board.
“Capital is improving with the proposed rights issue, but the ensuing dilution further pressures earnings,” Francesca Tondi, an analyst at Morgan Stanley in London who has an underweight recommendation on the stock, said in an e-mailed report before the earnings were released. “There is a large de-leveraging still to execute.”
The company’s common equity ratio under fully applied Basel III capital rules, a benchmark measure of financial strength, was 7.5 percent compared with 7.6 percent on Dec. 31, it said. Commerzbank is using the capital increase to boost this ratio by about 1 percentage point and help it reach a target of 9 percent by the end of 2014.
Shareholders will be able to subscribe to the new shares from mid-May to early June, according to Commerzbank.