Commerzbank Takes $520 Million Virus Hit as Provisions Jump
Commerzbank Takes $520 Million Virus Hit as Provisions Jump
(Bloomberg) --
Commerzbank AG took a 479 million-euro ($520 million) hit to deal with the fallout from the coronavirus crisis, joining peers in marking down assets and boosting reserves to deal with bad loans.
The Frankfurt-based bank said on Wednesday that 185 million euros of its 326 million euros in credit provisions were directly related to the outbreak, while the crisis also caused a hit of 295 million euros in the value of customer derivatives. Commerzbank said credit provisions could reach 1.4 billion euros this year, making its goal of posting a profit “very ambitious.”
The outbreak has added urgency to a four-year turnaround effort by Chief Executive Officer Martin Zielke that has failed to restore robust profitability. While he cut soured loans, a pivot toward retail and corporate lending in Commerzbank’s home market is leaving it exposed to negative interest rates and business disruptions. Zielke is now working on his third round of cost cuts and hired McKinsey & Co. to review his business model, Bloomberg has reported.
“We’re looking into our costs again and we definitely want to increase our profitability target,” Chief Financial Officer Bettina Orlopp said in an interview on Bloomberg TV. “Indeed, corona has added some new lights on it and we will incorporate that and we will update you in the summer.”
Bloomberg reported Tuesday that Commerzbank is considering deeper cuts to its vast branch network as the crisis forces more clients online, allowing Zielke to reverse course on a pledge that he would keep most branches. The CEO has come under pressure from his largest shareholders after his previous targets were widely seen as unambitious.
”Customer behavior, especially the German one, is really changing,” Orlopp said. “We’re thoroughly analyzing the situation and also the impact on our business model and we will adapt to it.”
Risk provisions for the full year could rise to between 1 billion euros and 1.4 billion euros, the bank said. Orlopp said that prediction was based on the assumption of a u-shaped economic recovery, with no second lockdown.
All European banks have reported higher credit provisions this earnings season though the increases have generally been much lower than the ones by peers in the U.S. European regulators have given lenders the leeway to take a longer-term view when forecasting how much of their loans may go bad, allowing the firms to consider the eventual recovery from the pandemic-induced slump.
ABN Amro
In the neighboring Netherlands, ABN Amro Bank NV also on Wednesday reported credit provisions of 1.1 billion euros and said the figure could rise to 2.5 billion euros for the full year. Like Commerzbank, ABN Amro is still part-owned by its government after a bailout in the wake of the 2008 financial crisis, underscoring just how slow European lenders have been to rebound.
Commerzbank fell 2.8% at 9:04 a.m. in Frankfurt, bringing losses this year to 43%. ABN Amro slumped 4.4% in Amsterdam and is down 61% so far in 2020.
Commerzbank on Monday scrapped its plan to sell its Polish subsidiary mBank SA after it was unable to get a good price for it. Zielke had planned to sell the unit to fund a restructuring of Commerzbank’s domestic operations. He later said a better-than-expected capital cushion had reduced the rationale for the deal.
Commerzbank lowered the full-year target for its common equity Tier 1 ratio -- a key measure of capital strength -- to at least 12.5%, citing lower regulatory requirements. The metric stood at 13.2% at the end of the first quarter.
More details from Commerzbank’s first-quarter earnings:
- 1Q revenue EU1.85 billion, estimate EU1.97 billion
- 1Q loss EU295 million, estimate loss EU217.9 million
- 1Q operating loss EU277 million, estimate loss EU169.5 million
- 1Q pretax loss EU233 million, estimate loss EU157.7 million
- 1Q common equity Tier 1 ratio 13.2% vs. 12.7% y/y
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