Commerzbank Warns on Pandemic’s Second Wave as Earnings Miss
Commerzbank Revenue Misses Estimates, Warns on Pandemic Impact
(Bloomberg) -- Commerzbank AG 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.
Germany’s second-largest listed lender reported a 69 million-euro net loss for the third quarter as group revenue fell 6.8%, both figures slightly worse than analysts had expected. The bank set aside 272 million euros for potential bad loans, below estimates, but suggested provisions could jump again soon.
“The rapidly evolving nature of the coronavirus pandemic means that the form and impact of the response measures” will need “to be monitored very closely over the coming days and weeks,” Commerzbank said Thursday. “This may in turn lead to corresponding reassessments of individual earnings forecasts.”
The cautious tone contrasts with the majority of European peers, who have pointed to the relative calm over the summer as they seek to persuade regulators to be allowed to pay dividends again. Under Chief Executive Officer Martin Zielke, who will step down at the end of the year, Commerzbank has cut back volatile investment banking and focused on lending, leaving it without a large trading operation that supported rivals such as Deutsche Bank AG in the pandemic.
Key figures from Commerzbank’s third quarter:
| in million euros | 3Q 2020 actual | 3Q 2020 estimate | 3Q 2019 actual |
| Revenue | 2033 | 2060 | 2182 |
| Net interest income | 1226 | 1240 | 1259 |
| Net commission income | 812 | 784 | 763 |
| Credit provisions | 272 | 307 | 114 |
| Pretax profit | -43 | -38 | 441 |
| Net income | -69 | -49 | 297 |
| CET1 ratio | 13.5% | 13.5% | 12.8% |
Shares of the lender fell 3.4% at 9:14 a.m. in Frankfurt trading, bringing losses this year to 25%.
Commerzbank said the quality of its loan book remains high, and that almost all borrowers have resumed servicing their debt after payment holidays ended in the third quarter, echoing similar comments by Deutsche Bank.
Chief Financial Officer Bettina Orlopp, speaking in a Bloomberg TV interview, said the bank is closely monitoring how the pandemic develops. Insolvencies could also increase because filing requirements that were suspended earlier this year will resume in January, she said.
The bank raised its forecast for a key measure of capital strength, saying it now expects a Common Equity Tier 1 ratio of at least 13% by the end of the year, compared with a previous forecast of 12.5%. The figure stood at 13.5% in the third quarter.
New Strategy
Commerzbank said it remains on track for a full-year loss, given the impact of the pandemic and the cost of restructuring measures. The bank announced a new early retirement program in an effort to cut another 1,000 jobs, resulting in a 139 million-euro charge.
The bank has been trying to cut costs more radically since a new turnaround plan unveiled by Zielke a little over a year ago prompted an investor backlash that ultimately led to his resignation in July. Supervisory Board Chairman Hans-Joerg Vetter has tapped a Deutsche Bank executive, Manfred Knof, to assume the CEO role.
Knof will join Commerzbank at the beginning of next year and he will have the final say over a new strategy that Commerzbank has been working on. Preliminary versions of that plan were going to seek drastic cost cuts to boost profitability.
Orlopp said she expects costs to be a key element of the new plan, which the bank will unveil in the first three months of next year. The lender may end up eliminating as much as a quarter of the workforce, Bloomberg has reported.
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