Commerzbank’s Top Shareholders Unhappy With CEO’s New Plan

(Bloomberg) -- Commerzbank AG Chief Executive Officer Martin Zielke is facing mounting opposition to his new turnaround plan from some of his largest shareholders and regulators.

Cerberus Capital Management LP and one other top investor are concerned that cost cuts presented by the bank in September don’t go far enough, people familiar with the matter said. One expressed that view in a meeting with the bank’s leadership, they said, asking not to be identified discussing the private information.

Commerzbank’s profitability target is less than half of what it should be and the planned sale of Polish subsidiary mBank SA is a mistake in one investor’s view. The other shareholder has called the plan a disaster. Regulators are unconvinced too, with a top watchdog saying the strategy looks insufficient to secure a standalone future for the bank.

A spokeswoman for Commerzbank said the targets were realistic and the bank had potential to add value in its core business. Cerberus declined to comment.

Zielke in late September unveiled new financial targets after scrapping most of his previous goals, blaming competition in Germany’s banking market and the European Central Bank’s negative interest rates. His new plan, which builds on a more radical restructuring announced three years ago, failed to convince analysts and credit rating providers who say it doesn’t offer material improvements in profit or dividends.

‘Realistic’ Targets

“The bank has set itself targets that it believes are realistic considering the current rate environment and macro-economic outlook,” Commerzbank said. “Savings require investments and the bank is consciously prioritizing its middle- to long-term success to short-term return targets.”

“The sale of our stake in mBank will allow the bank to self-finance its growth and investment program at a faster pace,” the spokeswoman wrote by email. “This decision is based on our belief that the bank has significant potential to increase value in its core businesses.”

Zielke has pledged to cut a net 2,300 jobs and eliminate 200 branches in an effort to reduce costs by about 9% over four years. To pay for the measures, he’s selling mBank, one of his most profitable assets. Shareholders face at least four more years of small dividends and weak earnings, with a return on tangible equity of 2% to 4%.

Commerzbank was down 0.3% at 11:13 a.m. on in Frankfurt trading. The stock is down about 4% since the plan was announced, compared with a gain of the same size for an index of European lenders.

‘Dud’ Strategy

“Commerzbank’s new restructuring plan doesn’t ensure its future as a viable standalone entity,” Bloomberg Intelligence analyst Philip Richards wrote in a note last week that called the proposal a “dud.” The sale of mBank was “akin to selling the family silver.”

Cerberus owns about 5% of Commerzbank, making the U.S. private equity firm the second-largest shareholder behind the government, which still controls 15.6% after a bailout. The Finance Ministry -- through a separate agency overseeing the Commerzbank stake -- said on Friday it has hired Boston Consulting Group to assess the lender’s strategy. The mandate will run for a maximum of 12 months, according to a spokeswoman.

Zielke’s previous overhaul plan was more ambitious. In October 2016, he mapped out plans to cut a net 7,300 jobs through 2020, pull out of large parts of Commerzbank’s capital-intensive trading business and grow revenue by gaining retail and business clients, including in Poland. Less than a year later, Cerberus took its stake in the bank as part of a wager on European lenders.

Both Cerberus and Berlin backed merger negotiations earlier this year between Commerzbank and larger rival Deutsche Bank AG, which they saw as a way to cut costs in Germany’s fragmented banking market. But Zielke and his Deutsche Bank counterpart, Christian Sewing, broke off the talks in April.

Soon after, Sewing presented a sweeping restructuring plan, pulling out of equities trading and cutting a fifth of the workforce. Deutsche Bank’s major shareholders -- which include Cerberus -- as well as top regulators and the government support the plan even though they also say success is far from certain, people familiar with the matter said.

--With assistance from Sarah Syed.

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;Birgit Jennen in Berlin at bjennen1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Ross Larsen

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