Commerzbank AG, the German bank forced into an 18.2 billion-euro ($24 billion) state bailout, surged the most in almost three months in Frankfurt trading after second-quarter earnings fell less than analysts estimated.
Commerzbank jumped as much as 11 percent, the biggest increase since May 15, and climbed 9.9 percent to 7.28 euros at 10:19 a.m., valuing the company at 8.3 billion euros. The stock has slumped 33 percent this year, the biggest decline on the benchmark Stoxx 600 Banks Index after Spain’s Bankia SA.
Germany’s second-biggest bank, which increased capital for the fifth time in four years in May to repay state aid, is firing staff to help boost profitability as it tackles souring shipping and commercial real estate loans. Standard & Poor’s cut the firm’s debt rating to A-, four levels above junk, two months ago saying poor economic conditions mean it will struggle to boost earnings sustainably.
“We are on the right track and we intend to press ahead systematically with the strategic measures that have been decided on,” Chief Executive Officer Martin Blessing said in a letter to shareholders on the bank’s website. “The early signs indicate that we are in fact on the right path.”
Net income slid 84 percent to 43 million euros from 270 million euros in the second quarter of last year, the company said in an e-mailed statement. That beat the 4.6 million-euro average estimate of eight analysts surveyed by Bloomberg.
Loan-loss provisions rose 33 percent to 537 million euros in the second quarter from a year ago, driven by U.K. commercial real estate loans, Commerzbank said. The bank took a one-time charge of 630 million euros in the first six months from the cost of its business overhaul, which included the sale of U.K. loans, it said.
The loan losses weren’t so bad if you stripped out charges for U.K. loans, Neil Smith, an analyst with Bankhaus Lampe in Dusseldorf, Germany who recommends investors buy the shares, said by telephone today.
Germany’s second-largest bank sold 5 billion euros of U.K. property loans to Wells Fargo & Co. and Lone Star Funds last month at a 3.5 percent discount to book value.
Commerzbank raised its core Tier 1 capital ratio, a key measure of financial strength that measures capital against risk-weighted assets, to 8.4 percent in June from 7.5 percent three months earlier after selling 2.5 billion euros of shares in May, according to the statement. The bank reiterated a goal of increasing the ratio to 9 percent by the end of next year.
“Investors are also concerned about capital,” he said. “It is comforting that they’re sticking with their target.”
Blessing, appointed in May 2008, is also eliminating 5,200 jobs by 2016 to boost the bank’s financial strength. Yesterday, he announced plans to reduce top-level management, including two board positions and about 20 percent of 55 “first-level” managers. The changes were needed because the structure became too complex, he said.
Angry shareholders criticized Blessing at an annual general meeting in Frankfurt in April, saying bad decisions at the bank meant that their investments had all but evaporated. Several called on the management to resign.