By Arno Schuetze
FRANKFURT Commerzbank was hit by restructuring costs, low interest rates and weak demand for loans from German companies in the third quarter, although the German bank's net loss for the period was not as dire as some had feared. Flat earnings at its Mittelstandsbank, which serves many of the small and medium-sized companies powering Germany's economy, were cushioned by cost cuts as well as better bond trading activities, which have boosted peers' earnings.That meant the 288 million-euro ($320 million) net loss reported on Friday by Germany's second-largest lender after Deutsche Bank was not as bad as analysts' expectations of 509 million euros.Squeezed by the European Central Bank's money-printing policy, German banks have been seeking ways to boost revenue by passing on costs to corporate customers and increasing fees for retail depositors, but profit margins remain thin in one of Europe's most competitive banking markets. Despite the third quarter loss, Commerzbank reiterated that it expects to make a small net profit for the full-year, down from 1.1 billion euros last year.
Shares in the bank, which are down 36 percent since the start of the year, were 0.6 percent lower at 0948 GMT, roughly in line with the market.Commerzbank is in the midst of a major overhaul and said in September it would cut more than a fifth of its workforce and suspend its dividend as it tackles the challenges of weak profits and a shift to online banking.The restructuring led to a writedown in the third quarter of 627 million euros on its investment bank, which it had grown with the 5 billion euro purchase of Dresdner Bank in 2008.
Despite the restructuring plans, Commerzbank trades at only 0.27 times book value, the lowest of its peers listed on the European Stoxx Europe Banks Index, excluding Italian banks Unicredit, Unione dei Banche Italiane and Banco Popolare. "The price to book ratio of 0.3 is too low in our view and does not reflect the bank's earnings recovery potential in the midterm," equinet analyst Philipp Haessler told clients.Commerzbank has said it plans to merge its business dealing with medium-sized German companies with its corporate and markets segment. It also plans to cut back trading in investment banking to help reduce earnings volatility and free up capital.
Operating profit in its retail bank fell due to pressure on Commerzbank's deposits business, where negative interest rates took their toll, despite an increase in customers and higher customer demand for mortgages. Further losses in shipping finance also weighed on earnings.Commerzbank's capital ratio at the end of the third quarter was 11.8 percent and Chief Financial Officer Stephan Engels said it is expected it to be around 12 percent by the end of 2016.($1 = 0.9013 euros) (Editing by Alexander Smith)
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Published Date: Nov 04, 2016 10:45 pm | Updated Date: Nov 04, 2016 10:45 pm