Commerzbank AG (CBK) said it will probably withhold dividends for this year and 2013 as it invests 2 billion euros ($2.6 billion) in consumer and corporate banking and repays funds to the European Central Bank. The shares fell.
Commerzbank will make the investment by 2016 and will pay back its first three-year Longer-Term Refinancing Operation, or LTRO, to the ECB in the first quarter, earlier than it anticipated. The announcement of the plans by Chief Executive Officer Martin Blessing today came as the lender reported a profit of 78 million euros for the third quarter, less than analysts had estimated.
Germany’s second-biggest bank is among European financial institutions restructuring operations and being forced by regulators to hold more capital amid the debt crisis. It hasn’t paid shareholders a dividend since 2008 and is exiting shipping and property finance to focus on consumer and corporate banking.
“There can be no return to ‘business as usual’ in the banking industry,” Blessing, 49, said in an e-mailed statement. “We want a new bank that unites modern technologies and traditional values.”
The bank’s shares fell 3.6 percent to 1.453 euros at 2:08 p.m. in Frankfurt, the biggest fall on the Bloomberg Europe Banks and Financial Services Index, which tracks 38 stocks across the continent.
Commerzbank will reduce “non-core assets” by more than 40 percent by 2016, Blessing told investors at a meeting in Frankfurt. The shakedown will help the bank achieve targets of a pretax return on equity of more than 10 percent and reduce its cost-to-income ratio, a key measure of profitability, to about 60 percent by that year. he said.
The bank’s third-quarter profit compared with a loss of 687 million euros a year earlier, when it wrote down 798 million euros of Greek debt holdings. It was expected to earn 83 million euros, according to the average estimate of nine analysts surveyed by Bloomberg.
Commerzbank will wind down its public finance, commercial real estate and shipping portfolios, bundled at the non-core assets unit, “essentially without any sales.” The business posted an operating loss of 476 million euros in the third quarter, the bank said.
Blessing said the lender will turn to retail banking, increasing customers by 1 million to a total of 12 million and boosting operating profit there to 500 million euros in 2016 from 215 million euros in the first nine months of this year.
“They’re giving investors a growth perspective with their retail unit,” Dirk Becker, an analyst with Kepler Capital Markets in Frankfurt, said by telephone. “It’s tough to make money in German retail.”
Commerzbank will keep costs steady, also making savings by restructuring its branch network and cutting jobs. Blessing didn’t say how many employees the bank will fire. It will incur expenses for the overhaul, according to the statement.
Blessing may fire 5,000 to 6,000 employees, Die Zeit newspaper reported yesterday.
Bank officials are in negotiations with workers’ representatives, he said. Ver.di, a labor union for service industry workers, said yesterday Commerzbank shouldn’t fire employees as a means to make it more competitive.
The lender will also restructure its private banking unit by investing 1 billion euros by 2016. Operating profit there slumped to 41 million euros in the third quarter from 71 million euros a year earlier, it said.
Blessing said he wants to attract new clients at its Mittelstandsbank corporate lending business. Third-quarter operating profit at the unit rose to 395 million euros from 344 million euros a year earlier. That beat the 346 million-euro average estimate of 10 analysts surveyed by Bloomberg.
“Despite the overall difficult market conditions we have achieved a solid result in the core bank,” Blessing said.
Commerzbank will bolster its Core Tier 1 capital adequacy ratio, a measure of financial strength, under phased-in Basel III rules “to substantially higher than 9 percent” until 2016, it said in the statement. The bank reported a Core Tier 1 ratio of 12.2 percent in the third-quarter earnings.
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