At Commerzbank, there is often only a few months between surprise and disappointment. Sometimes the board spreads optimism, such as after the first three months of 2021, when the institute had to declare a profit again after a painful annual loss the previous year. A little later, the general management must fall back on the vocabulary reserved for lean periods, like this Wednesday. “We achieved a strong operating result in the first half of the year,” CEO Manfred Knof said during the presentation of the quarterly figures. The implementation of the strategy is “fully on track”.
Solid, in the parlance of listed companies, at least means something like: it could be better. Or again: we have not succeeded more than mediocre.
With a loss of 527 million euros, Commerzbank underestimated analysts’ expectations in the second quarter. The reorganization of the group is supposed to get the bank back on track, but it costs a lot of money first: the “restructuring costs” are what the bank calls these reconstruction costs, which alone amounted to 511 million dollars. euros. For example, severance pay is expensive for many well-paid workers. By the end of 2024, the number of full-time positions in the group should increase from 39,500 to 32,000; the institute has just launched a volunteer program for this purpose. In the same period, the management wants to reduce costs by about a fifth, out of 790 branches, only 450 should remain. A “digital advisory bank” is to become at some point the second private financial institution in Germany, a sort of direct banking with a bit of customer service.
Judge’s verdict against bank balance sheets
Knof has taken over a lot of the strategy of his predecessors, but this is a clean break with the plans of the former board around ex-CEO Martin Zielke. He still relied heavily on branches and their modernization. In July, Knof canceled another major project from the Zielke era: In 2017, the bank decided to outsource its securities processing. The already advanced sale to the big British bank HSBC is now being canceled. The significant increase in transaction volume and technological development have enabled Commerzbank to continue to process securities in a profitable manner, it was justified. The stage now costs the bank an additional 200 million euros, which places an additional burden on the result.
The verdict of a judge of the highest German civil court also left clear marks on the balance sheet. In April, the Federal Court of Justice ruled that banks should not just require their customers’ consent for changes to terms and conditions, but should actively seek them. This came as a shock to the industry, as in the era of low interest rates, price and fee increases had become the standard recipe for many banks. Many bank customers can now claim part of the excessively high fees: sample letters are circulating on the net and consumer advice centers are giving advice. Commerzbank made provisions of 66 million euros in the second quarter following the BGH shutdown. In this case, too, it was money that could have been used in operational matters.
The management board sticks to forecasts for the entire year
From the management board’s point of view, however, the company itself is doing well. Operating income – excluding special effects – amounted to € 32 million. Despite the special effects, the management team is sticking to its forecasts: profit, that is, the bank’s total income, is expected to increase from the previous year. In the first half of the year, they amounted to 4.4 billion euros, 5.5% more than in the same period of the previous year. According to analysts’ estimates, the institute could reach 8.3 billion euros over the whole year, after 8.2 billion the previous year. By way of comparison: Deutsche Bank generated a good turnover of 24 billion euros in 2020. The news of Commerzbank was poorly received on the stock market on Wednesday morning. After the stock market opened, the share price was sometimes more than five percent lower.
With a simultaneous renovation and modernization program, CEO Knof, in office since January, is trying to make the bank once again “more sustainable more profitable”. He moved to Commerzbank after CEO Martin Zielke and Chief Controller Stefan Schmittmann announced their resignations in July 2020. Due to an internal dispute over the growing influence of the federal government, which owns around 15% of the bank since the financial crisis, three other members of the supervisory board resigned in April. After all, the bank seems to have overcome this management chaos for now.