Kristian Rouz – Amid allegations of the German government possibly bailing out Deutsche Bank, a global financial institution facing regulatory challenges in the US and operating setbacks to its broader business, Germany’s second-biggest lender, Commerzbank, confirmed on Thursday that it is undergoing turmoil as well.
The bank will reduce its workforce over a four-year timespan, however, suggesting it is not facing immediate struggle. However, with Commerzbank being Deutsche Bank’s direct competitor, and the latter now seeking a solution to settle issues with its $2 trln balance sheet, Commerzbank’s restructuring is an alarming signal. The bank’s business plan through 2020 will cost as much as $1.13 bln, the newspaper Handelsblatt reported.
Commerzbank is set to hold its strategy planning meeting on Friday to discuss the best way to achieve its profitability targets in the changing environment. In 2015, the bank had roughly 51,300 employees.
“The focus on the core business, with some business activities being discontinued, and the digitalization and automation of workflows will lead to staff reductions amounting to around 9,600 full-time positions,” Commerzbank said.
Commerzbank is also intending to downsize its investment banking operation, with the current level of exposure to financial markets perceived as too risky.
The lender also warned it is expecting a greater amount of loan losses due to the “ongoing weakness in the shipping markets.” Subsequently, the announced measures will result in 700 mln euros in losses and write-offs in 3Q16 alone.
“We have long talked about the need for Commerzbank to cut costs given the benign revenue environment,” Nicholas Herman and Andrew Coombs of Citigroup, wrote on Thursday. “We’re encouraged by these developments. However, the profit targets are ambitious and Commerzbank has a poor track record of delivering.”
The bank’s stock slumped 38 percent this year thus far, and indeed, its track record in overcoming financial challenges to its performance is hardly encouraging. In 2008, Commerzbank acquired Dresdner Bank, and the entailing debt burden resulted in an 18 bln euro bailout. The bank is still partially owned by the German government, having not yet fully recovered from the past crisis.
In 2016, the bank aims to earn 9.8 bln euros in revenue; the figure is expected to increase to 10.3 bln euros by 2020. The return on equity would be 6 percent by late 2020, the bank said.
