Commerzbank AG Chief Executive Officer Martin Blessing gave up his bonus for last year and cut the payouts by an average 17 percent across the firm, warning of higher costs and more pressure on revenue.
The pay reductions, which included lowering the investment banking bonus pool by 20 percent, helped decrease personnel expenses to 3.96 billion euros ($5.3 billion) from 4.18 billion euros in 2011, Commerzbank said in an e-mailed statement today from Frankfurt. The low interest-rate environment and non-core asset reductions are curbing revenue, it said.
“We have succeeded in strengthening the capital base and reducing our costs by a significant amount,” said Blessing, 49. “There is a long way to go.”
Commerzbank, in which the government owns 25 percent after an 18.2 billion-euro bailout in 2009, is restructuring its consumer banking unit and cutting as many as 6,000 jobs over the next four years, as it closes its shipping and real estate financing arms. The bank was put on review last week for a possible downgrade by Standard & Poor’s because of concern about the impact of the restructuring on earnings.
The company said as many as 3,400 jobs may go in consumer banking and it will probably set aside more funds for risky loans this year after almost 1.7 billion euros in 2012. There will be a “slight” increase in total costs after they fell to 7 billion euros in 2012 from 8 billion euros the previous year, Chief Financial Officer Stephan Engels said on a conference call with analysts.
Commerzbank climbed as much as 4.8 percent to 1.545 euros in Frankfurt. The share rose 1.2 percent to 1.491 euros at the 5:30 p.m. close of trading, paring three days of losses and valuing the firm at 8.7 billion euros. The 38-member Bloomberg Europe Banks and Financial Services Index fell 0.7 percent.
“Investors buying the shares are making a call on the wider economy,” said Dirk Becker, an analyst with Kepler Capital Markets in Frankfurt, who recommends investors purchase the stock. Today’s news on costs and loan-loss provisions “made for a complete disaster,” he said.
The government in Berlin is not very disappointed with the performance of Commerzbank, Blessing said at a news conference.
Blessing’s fixed compensation was 1.3 million euros last year, he said. The 2012 bonus would have been “a substantial amount,” he said. Blessing earned 569,000 euros in 2011, when his salary was capped due to the bailout, including a basic wage of 500,000 euros, according to data compiled by Bloomberg.
Deutsche Bank AG co-CEO Anshu Jain received 5.8 million euros in 2011, when he was head of the investment banking unit. The bank hasn’t published his wage for 2012.
The bank’s core Tier 1 capital ratio under current Basel rules increased to 12 percent in December from 9.9 percent in 2011. The ratio according to more stringent Basel III capital rules was 7.6 percent, it said.
“Their fully-loaded Basel III ratio was rather disappointing as a series of European banks have been able to exceed capital targets,” Rehn said.
The bank revised its fourth-quarter loss to 716 million euros compared with the 720 million euros it reported last week in a preliminary earnings statement. It posted a profit of 316 million euros a year previously.
Commerzbank said it expects 500 million euros in charges in the first quarter related to job reductions.
The firm’s non-core assets unit, where it bundles public and commercial real estate and ship financing, had a loss of 447 million euros, more than the 385 million-euro median estimate in a Bloomberg survey of seven analysts. The unit accounted for 151 billion euros in assets weighted by their risk, it said. The company will reduce “non-core assets” by more than 40 percent by 2016, Blessing said in November.
“We expect 2013 to be rather weak with the risk of additional losses for negative surprises in non-core business,” Christoph Bast, analyst at DZ Bank AG in Frankfurt, said in an e-mailed report to clients today.
Operating profit at the corporate clients unit, known as the Mittelstandsbank, rose to 376 million euros from 271 million euros a year earlier. Earnings at the unit, the biggest contributor to Commerzbank’s profit, compared with a median estimate of 345 million euros of seven analysts.
The “strong state of the German economy” led to a decrease in loan-loss provisions and contributed to the increase in net income for corporate banking, the bank said.
Operating profit at Commerzbank’s private clients unit slumped to 30 million euros from 109 million euros as interest and commission income and customer activity declined. That compared with a median analyst estimate of 19 million euros.
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