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Commerzbank to axe nearly 10,000 jobs Commerzbank to axe nearly 10,000 jobs
(about 3 hours later)
Commerzbank is to cut nearly 10,000 jobs and suspend its dividend as part of a wide-ranging restructuring plan. Commerzbank has unveiled plans to cut nearly 10,000 jobs and suspend its dividend for the first time, in a move that has sent fresh jitters through Europe’s embattled banking sector.
Germany’s second biggest lender after Deutsche Bank said on Thursday it expected restructuring costs of €1.1bn (£948m) as it combined business operations and cut costs to offset the impact of low loan demand and negative European Central Bank interest rates amid a shift to digital banking. The news of a wide-ranging overhaul of Germany’s second-biggest lender came as fears intensified over its larger rival Deutsche Bank, which faces the prospect of a $14bn (£10.5bn) penalty from US authorities for mis-selling mortgage bonds a decade ago.
The revamp will come at a heavy cost for staff as Commerzbank slashes 9,600 of its 45,000 full-time positions – almost one in five jobs. The move is a more drastic reduction than at Deutsche Bank, which is axing about 10% of staff but suggests deeper cuts may be needed. Shares in Deutsche Bank fell to near 30-year lows earlier this week amid reports – which were denied – that it had asked for German government intervention to help reduce the fine from the US Department of Justice.
Commerzbank plans to merge medium-sized German firms with its corporate and markets operations, while also scaling back trading activities in investment banking. On Thursday, Deutsche Bank’s US-listed shares came under more pressure as it emerged some hedge funds had cut their exposure to the bank.
That move is expected to prompt a writedown of about €700m in the third quarter, leading to a quarterly net loss. Commerzbank expects to turn a small net profit in full-year 2016, down from €1.1bn last year. Commerzbank’s 9,600 job cuts amount to more than a fifth of its workforce, and reflect challenges faced across Europe’s banking sector from record low interest rates and a shift to online banking.
The lender said it expected restructuring costs of €1.1bn (£948m) as it combined business operations and cut costs to offset the impact of low loan demand and negative European Central Bank interest rates.
The move is a more drastic reduction than at Deutsche Bank, which is axing about 10% of staff.
German-listed shares in Deutsche Bank steadied somewhat on Thursday, to close up 1% at €10.87. But over on Wall Street, shares in Germany’s biggest bank fell more than 7% at one point, on a report that around 10 hedge funds that clear derivatives trades with Deutsche had cut their exposure by withdrawing some excess cash and positions held at the bank.
The news service Bloomberg said in its report that the moves were a sign of counterparties’ “mounting concerns about doing business with Europe’s largest investment bank”. However, the “vast majority” of the 200 clients that clear their derivatives through Deutsche had made no changes.
Deutsche Bank, which has insisted it does not need help from the German government, was quick to stress on Thursday that it was in a “stable financial position” and making progress.
“Our trading clients are amongst the world’s most sophisticated investors. We are confident that the vast majority of them have a full understanding of our stable financial position, the current macroeconomic environment, the litigation process in the U.S. and the progress we are making with our strategy,” the bank said in a statement.
German-listed shares in Commerzbank had also come under pressure and were the biggest fallers on the Dax index after its dividend announcement spooked investors. They fell 3.1% to €5.80. The shares have fallen by nearly 40% since the start of the year, compared with a 24% drop in the banking index.
Commerzbank plans to merge its corporate and markets business with medium-sized German firms, while scaling back trading activities in investment banking.
That is expected to prompt a writedown of about €700m (£605m) in the third quarter, leading to a quarterly net loss. Commerzbank expects to turn a small net profit in full-year 2016, down from €1.1bn last year.
The bank will concentrate on two customer segments in future: private and small business customers and corporate clients, with the restructuring expected to lift net return on tangible equity to at least 6% by the end of 2020 from 4.2% last year.The bank will concentrate on two customer segments in future: private and small business customers and corporate clients, with the restructuring expected to lift net return on tangible equity to at least 6% by the end of 2020 from 4.2% last year.
Commerzbank aims to add 2,300 jobs in areas where business was growing, which would ease the net reduction to 7,300. Commerzbank aims to add 2,300 jobs in areas where business is growing, which would ease the net headcount reduction to 7,300.
Market reaction to the announcement – parts of which had been reported by media in recent days – was muted, with Commerzbank’s shares trading 1.7% lower at €5.89 at lunchtime on Thursday, lagging a 0.9% rise in the Stoxx Europe 600 banking index. The bank’s supervisory board was reviewing the plans in a meeting on Wednesday and again on Thursday. Employee representatives have said they will resist job cuts.
Commerzbank’s shares have fallen by nearly 40% since the start of the year, compared with a 24% drop in the banking index. Bankhaus Lampe analyst Neil Smith said the staff cuts were large but Commerzbank’s target of reducing its annual cost base to €6.5bn by 2020, from €7bn last year, fell short of his expectations.
The bank’s supervisory board was reviewing the plans in a meeting on Wednesday and again on Thursday. Employee representatives have said they would resist job cuts. Smith said he had also hoped Commerzbank would make faster progress on winding down its exposure to the troubled ship-financing sector. “If they were able to exit shipping quickly and at not too big a cost, they might be able to restore the dividend rapidly afterwards,” he said.
Bankhaus Lampe analyst Neil Smith said the staff cuts were large but Commerzbank’s target of reducing its annual cost base to €6.5bn by 2020, from €7.bn last year, fell short of his expectations.
Smith said he had also hoped Commerzbank would make faster progress on winding down its exposure to the troubled ship financing sector. “If they were able to exit shipping quickly and at not too big a cost, they might be able to restore the dividend rapidly afterwards,” he said.
Commerzbank said it would cease dividend payments for the time being to cover restructuring costs.Commerzbank said it would cease dividend payments for the time being to cover restructuring costs.
One of the bank’s top 10 shareholders said the drastic cost-cutting would be hard for employees but was unavoidable to make the bank more efficient.One of the bank’s top 10 shareholders said the drastic cost-cutting would be hard for employees but was unavoidable to make the bank more efficient.
“I assume Commerzbank won’t pay a dividend before 2020, and that is terrible,” said the investor, who declined to be named.“I assume Commerzbank won’t pay a dividend before 2020, and that is terrible,” said the investor, who declined to be named.
Germany’s finance ministry declined to comment.Germany’s finance ministry declined to comment.
Berlin holds a stake of more than 15% in Commerzbank, a legacy of its €18bn bailout of the lender in the financial crisis.Berlin holds a stake of more than 15% in Commerzbank, a legacy of its €18bn bailout of the lender in the financial crisis.