Frankfurt: Germany’s second-largest lender Commerzbank will refuse loans which don’t help Germany or Poland, as the euro zone crisis makes European banks more protectionist in choosing between writing new business and meeting stringent capital requirements.
“We are not doing business which is not to the benefit of Germany or Poland,” Chief financial officer Eric Strutz told analysts on a conference call discussing third-quarter earnings on Friday. “We have to focus on supporting the German economy as other banks pull out.”
The Commerzbank AG headquarters in Frankfurt. Photo: Bloomberg.
Commerzbank is accelerating the pullback from euro zone nations and cutting risky assets to avoid another state bailout after a €798 million ($1.10 billion) impairment on Greek assets pushed it to a third-quarter operating loss.
The lender, which is 25% owned by the state, was forced to abandon its profit target for next year, as it struggles to meet more stringent capital requirements to help withstand euro zone market jitters.
“We continue to be committed to our original operating profit target of €4 billion for the group but, on account of the market environment, we will be unable to reach this target next year,” Chief executive Martin Blessing said on Friday.
“The outlook for the current year and 2012 is subdued,” the company said in its report, citing the risk of escalation of the European sovereign debt crisis and stricter capital requirement for the industry.
Get Its Act Together
In a conference call with analysts, finance chief Strutz was more forthright: “The whole stability of Europe depends on whether Italy gets its act together,” he said, citing a key economy seen vulnerable to contagion.
The lender’s exposure to the country was €14.3 billion at the end of September, €7.9 billion of which in sovereign debt.
Its property financing unit Eurohypo will stop taking new business and the group as a whole will for now stop making loans not related to Poland or Germany, the bank said.
Last month, CEO Blessing had already made clear he would rather pare back businesses than resort to German state rescue fund SoFFin a second time.
Commerzbank said it had a core tier one ratio of 9.4% at the end of September and needs to raise €2.9 billion to meet capital requirements set out by the European bank regulators.
“We can meet the required capital ratio by, for example, reducing risk assets in non-core areas, selling non-strategic assets or by means of retained earnings and we do not intend to tap new state funds,” Commerzbank said.
Vulnerable To Threats
“Commerzbank remains vulnerable to many existing external threats outside its direct control,” Silvia Quandt analyst Michael Rohr said.
Commerzbank will keep its Eastern European BRE Bank unit and its online arm comdirect but will “review the possibility of selling financial investments” in the hope of cutting risky assets by €30 billion, the bank said.
Having cut exposure to indebted euro zone countries by more than 20% to €13 billion, including a 52% haircut on Greek debt, the Frankfurt-based lender said it would continue reducing its public sector debt in Portugal, Italy, Spain, Ireland and Greece.
The third-quarter operating loss of €855 million compared with a year-earlier profit of €116 million was worse than the €683 million loss estimated in a Reuters poll.
Earnings from Commerzbank’s core businesses of lending to midsized German, the so-called Mittelstandsbank, generated an operating profit of €344 million.
“Q3 results were weaker than expected, particularly performance in the core bank was disappointing,” Equinet analyst Philipp Haessler said.