As of: 08/03/2022 3:23 p.m
Massive job cuts and branch closures lead to surprisingly high profits at Commerzbank. But the energy crisis is causing concern for the financial institution – the reserves for possible loan defaults are increasing.
Regardless of the economic downturn, Commerzbank is aiming for billions in profit this year – but sees the energy crisis as a risk for its business. In order for the profit to exceed the one billion euro mark as planned, the economic situation must not deteriorate any further, said Commerzbank CFO Bettina Orlopp today at the presentation of the quarterly balance sheet: “In this context, the supply of gas to the German economy remains a major factor of uncertainty .”
In the second quarter, Commerzbank earned a total of 470 million euros. That was almost 100 million euros more than analysts had expected. According to the bank, both private and corporate customer business have developed well. Just a year ago, high costs for job cuts and branch closures had torn the institute deep into the red with 527 million euros.
Financial burdens of the war
In the second half of the year, his institute is expecting “light and shadow,” said Commerzbank boss Manfred Knof. For example, the bank set aside 106 million euros for the default of possible loans in order to cushion the negative consequences of the war in Ukraine and the cut gas supplies from Russia. That’s a fifth more than a year ago – but less than expected. The rate of problem loans has so far remained low at 0.8 percent. The bank’s risk provisions for loans at risk of default should total EUR 700 million this year.
Deutsche Bank, which presented its figures last week, is also significantly increasing its risk provisions. With 292 million euros, the group set aside four times as much money for possible loan defaults as in the same period a year earlier.
For Commerzbank, the financial burdens as a result of the war in Ukraine totaled 228 million euros. The bank had reduced its risks in Russia by 45 percent to EUR 1.02 billion by mid-July.
There will be additional burdens for the bank in the second half of the year. Due to a new law in the country, customers of the Polish Commerzbank subsidiary mBank can now suspend their installment payments for mortgage loans up to eight times until the end of next year. mBank therefore expects charges of between EUR 210 and 290 million for the third quarter.
“Severe recession” could threaten
Despite the economic upheaval, Commerzbank earned a total of 768 million euros in the first six months. This corresponds to around three quarters of the targeted profit for the year. The bank sees itself on course for a possible profit of billions – should the economy not cloud over further. Should Russia stop gas supplies completely, “the German economy would probably plunge into a severe recession, similar to what happened after the 2009 financial crisis,” says the interim report.
The bank’s revenues in the second quarter increased by 30 percent compared to the same period last year – from 1.9 billion euros to 2.4 billion euros – thanks to the strong customer business and rising interest rates. In view of the latest business figures, Commerzbank boss Knof sees his strategy confirmed: “We have succeeded in increasing Commerzbank’s resilience in a very difficult time.”
Tough austerity program with massive job cuts
The manager took over the management of the bank at the beginning of 2021 and shortly afterwards initiated an extensive savings program with radical job cuts. By the end of the year, the bank wants to have largely regulated the reduction of 10,000 gross full-time positions. For 7700 jobs, this had already happened by the end of June, it said.
Commerzbank also made much faster progress in reducing its branch network: the number of branches in Germany had already fallen to 450 by the end of June, the statement said. At the beginning of the austerity program there were 790 branches. In the first half of 2022 alone, Commerzbank closed 100 branches.
Commerzbank shareholders will receive a dividend this year: the institute intends to distribute 30 percent of the annual profit attributable to shareholders as a dividend.