Commerzbank Takes Additional $2.6 Billion Hit From Pandemic

Commerzbank AG will take an additional 2.1 billion-euro ($2.6 billion) hit in the fourth quarter as the pandemic weighs on interest rates and drives up bad loans, pushing the lender deeper into the red as it readies a new turnaround plan.

Commerzbank will write off 1.5 billion euros in goodwill on its books and set aside about 630 million euros for bad loans to reflect the impact of a second lockdown, according to a statement Friday. That’s on top of a 610 million-euro charge the Frankfurt-based bank announced last month to cover job cuts.

Chief Executive Officer Manfred Knof, who took over this month, is preparing to unveil a radical restructuring after shareholders pushed out the previous leadership amid frustration with the slow pace of change. Knof and new Supervisory Board Chairman Hans-Joerg Vetter are now working on a more ambitious cost-cutting plan with about 10,000 jobs on the line, Bloomberg has reported.

“After this balance sheet clean-up, we are well prepared for the road ahead of us,” Knof said in the statement. “Our goal is to make the bank more profitable in the long term.”

Commerzbank shares fell as much as 4.1% after the announcement and were trading 3.1% lower at 12:56 p.m. in Frankfurt. They have fallen about 5% in the past 12 months.

European banks have set aside less money for doubtful loans than U.S. lenders during the pandemic, citing protection from taxpayer-backed loan guarantees and other stimulus measures. Yet that imbalance also shows that U.S. lenders can better afford the provisions than their European counterparts, which have suffered from years of ultra-low and even negative interest rates that were intended to boost the economy.

At Commerzbank, loan loss provisions booked in 2020 will amount to at least 1.7 billion euros, including a “top-level adjustment” of 500 million euros for the fallout from the pandemic in 2021, it said on Friday. That’s more than the 1.55 billion euros that analysts surveyed by Bloomberg were expecting.

The announcement came after the lender last month said it would set aside 610 million euros in the fourth quarter to fund existing overhaul plans. In November, it warned that the outlook for bad loans could worsen depending on how the second wave of the pandemic develops, breaking from peers who have taken a more optimistic view.

Commerzbank said the goodwill charge won’t affect its common equity Tier 1 ratio, a key measure of financial strength, which stood at about 13% at the end of the year. That’s down from 13.5% three months earlier.

The German lender had previously forecast a loss for 2020 because of higher provisions for bad loans and costs to eliminate jobs. Before Friday’s announcement, analysts surveyed by Bloomberg had expected the net loss to amount to 366 million euros, according to the average of 11 estimates.

©2021 Bloomberg L.P.

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