Bloomberg News

Commerzbank Reports Quarterly Loss on Greek Writedowns

November 07, 2011

(Updates with analyst comment in fourth paragraph.)

Nov. 4 (Bloomberg) -- Commerzbank AG, Germany’s second- largest lender, swung to a third-quarter loss after writing down the value of its Greek government debt holdings and said it will miss a profit target next year.

The net loss was 687 million euros ($949.2 million), compared with a 113 million-euro profit in the year-earlier period, according to a statement from the Frankfurt-based bank today. Analysts surveyed by Bloomberg had, on average, estimated the company would post a loss of 679 million euros.

European leaders are demanding banks raise capital to bolster their resilience after they agreed last week to accept a 50 percent loss on Greek sovereign holdings as part of a package to tackle the debt crisis. Commerzbank, which said Oct. 27 it doesn’t plan to seek state aid, may need 2.94 billion euros in fresh capital, the European Banking Authority estimated.

“The numbers were weak and pretty disappointing,” said Philipp Haessler, an analyst with Equinet Bank AG who recommends investors buy the stock. “It was clear the writedowns would come but they disappointed on the operating level.”

Commerzbank shares fell 3.9 percent to 1.684 euros as of 9:43 a.m. in Frankfurt trading today. They have plunged about 62 percent this year, valuing the company at 8.6 billion euros and making it the worst performer on Germany’s benchmark DAX Index. The slump is more than double the drop in the Bloomberg Europe Banks and Financial Services Index of 46 companies.

The German bank had sovereign risks related to Greece of 1.4 billion euros on Sept. 30, down from 2.2 billion euros on June 30 after writing down the value of Greek government bonds by 798 million euros, according to the statement.

Profit Goal

“The European sovereign debt crisis deepened in the third quarter of 2011,” Chief Executive Officer Martin Blessing said in the statement. “The uncertainty on the financial markets triggered by the sovereign debt crisis, together with the austerity policies in a number European countries, is likely to exert an increasing drag on the real economy.”

Commerzbank won’t reach a goal for operating profit of more than 4 billion euros in 2012, a target set in 2009 that was subject to “stable market conditions.”

“We continue to be committed to our original operating profit target of 4 billion euros for the group, but on account of the market environment we will be unable to reach this target next year,” Blessing said.

The bank can reduce its risk-weighted assets by as much as 30 billion euros to meet EBA requirements on capital by the middle of 2012, according to the statement.

To do so, the lender said it will temporarily suspend new business at its Eurohypo unit as well as new loan business unrelated to Germany or Poland, reduce or sell “non-strategic” assets and review the sale of financial investments, excluding its Comdirect Bank AG and BRE Bank SA units.

Capital Levels

Retained earnings and cost management will provide additional options to reach the targeted 9 percent core Tier 1 capital ratio, the bank said.

BNP Paribas SA, France’s largest bank, yesterday said third-quarter profit fell 72 percent because of a 2.26 billion- euro writedown on Greek sovereign debt and losses from selling European government bonds. Deutsche Bank AG, Germany’s biggest bank, on Oct. 25 reported third-quarter profit that beat analysts’ estimates as gains in consumer banking and asset management cushioned a decline in trading revenue.

The lender completed a 5.3 billion-euro share sale in June in addition to raising 5.7 billion euros from selling conditional mandatory exchangeable notes to help repay government aid. Commerzbank got more than 18 billion euros from the state after agreeing to buy rival Dresdner Bank two weeks before the collapse of Lehman Brothers Holdings Inc. in September 2008. Germany has maintained its stake of 25 percent plus one share in the lender.

Sovereign Risks

Commerzbank’s risks related to the sovereign debt of Greece, Ireland, Italy, Portugal and Spain declined to 13 billion euros at the end of September from 14.7 billion euros three months earlier and the bank will continue its reduction in government bonds in “coming months,” according to the statement.

Commerzbank has secured pre-funding for 2012 of about 2 billion euros, leaving 6 billion euros to 8 billion euros in financing for next year, according to a presentation today. The lender said it expects funding needs in 2013 to decline further.

--With assistance from Oliver Suess in Munich. Editors: Frank Connelly, Stephen Taylor

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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