Commerzbank Share Gain Hides Challenge for Blessing's Successor

  • Dividend for 2015 will be bank's first payout in eight years
  • Next CEO faces challenge of low interest rates eroding profit

Martin Blessing announced his plan to step down on a high note, after leading Commerzbank AG through a series of crises since 2008. His successor may find it difficult to maintain the positive mood.

“The real art of the next few years is going to be keeping a handle on risk, while at least holding the current level of earnings,” Viktor Hund, who helps manage 61 billion euros ($67 billion) at LBBW Asset Management, said by phone from Stuttgart. “That’s a tough job.”

The stock jumped the most in almost two months on Monday after Commerzbank raised capital levels, reported earnings that beat analysts’ estimates and announced a dividend of 20 cents a share for 2015, its first since 2007. The bank is “once again robust,” Blessing said in an internal memo, while warning that low interest rates and stricter regulatory requirements are “major challenges” for the industry.

Commerzbank is emerging from an overhaul after its 18.2 billion-euro bailout in the financial crisis and soured investments ranging from shipping loans to Greek government bonds. German banks are also contending with declining profitability as record-low interest rates reduce the amount they can charge on loans and European competitors do more business in Europe’s largest economy.

Blessing will step down when his contract ends next October, the bank said in a statement from Frankfurt on Sunday. He was offered an extension, but turned it down, Commerzbank said.

Share Sales

Commerzbank has sold shares on multiple occasions to repay German state aid and raise capital levels and has cut jobs to lower expenses. Blessing hung onto his post after leading a takeover of Dresdner Bank in August 2008 that helped to push the company into its bailout and survived a record loss of 4.54 billion euros in 2009 and a 2.23 billion-euro writedown on Greek debt in 2011.

"It’s not a bad time to leave the bank -- it’s not in as bad a situation as it used to be,” said Boris Boehm, who helps manage about 2.3 billion euros at Aramea Asset Management in Hamburg. “Now someone else can try to make it a little more dynamic."

Commerzbank has already exceeded its capital goals for next year. Blessing has said that the low interest-rate environment has made it more difficult for the company to reach its profitability target.

Commerzbank’s net interest income, the difference between the bank’s revenue from its assets and the cost of paying for its liabilities, fell 9 percent to 5.61 billion euros last year, its fifth annual decline, data compiled by Bloomberg show.

“A potential change in management and strategic vision for the group may be welcomed,” Citigroup Inc. analysts Nicholas Herman and Andrew Coombs wrote in a report.

The analysts, who have a neutral stance on the shares, said that while the bank’s progress on capital and the dividend could be seen as positive, Commerzbank’s core business exhibited weakness in the third quarter.

Outside Candidate?

“The supervisory board will have to consider whether there is someone outside the bank who has what it takes,” said Michael Seufert, an analyst at Norddeutsche Landesbank who has a buy rating on the shares. “If they look internally, then you’d have to assume that the executives who run their two biggest units would be favorites.”

The company’s two largest units, consumer banking and a division that caters to small and medium-sized companies, are run by Martin Zielke and Markus Beumer respectively.

Chief Financial Officer Stephan Engels told reporters on a conference call on Monday that he regrets that Blessing is leaving. He declined to say if he’s a candidate to replace him.

Other European banks have looked beyond current management teams to name new CEOs. Deutsche Bank AG, Germany’s biggest bank, in July swapped out co-CEO Anshu Jain, who helped build the company’s investment bank, for John Cryan, a former CFO of UBS Group AG who sat on the German company’s supervisory board.

While an outsider wouldn’t be associated with the mistakes of former management, the challenge would remain the same, Hund said.

“Whenever there was news of a bad investment decision, Commerzbank was usually involved and you have to associate that with Blessing -- but then he did show the courage to clean it up,” Hund said. “The next Commerzbank CEO is going to have to ask themselves how they plan to cope with the low interest-rate environment.”

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