Commerzbank’s retail arm records low performances.

06:06 Unknown

Commerzbank, Germany's Second largest bank. Image Credit FT.com

Commerzbank is weighing options for its underperforming retail bank as Germany’s second-largest bank by assets continued to struggle under the burden of its legacy assets and the turbulence caused by the financial crisis.
Profits in retail banking in Germany were “not satisfying”, Commerzbank said, after operating profits from the division fell 35 per cent to €126m in the first six months of the year.
Commerzbank reported second-quarter net income of €275m, compared with just €24m in the same period last year. However in the first six months group net income fell from €1bn to €644m, with operating profits down by one-third at Commerzbank’s core operations, which include its retail, corporate and investment banking arms as well as its business in central Europe.

Net income in the second half of the year was set to be lower than in the first six months, the bank said.

Retail banking was one of the parts of Commerzbank that was supposed to have been decisively strengthened when the bank took over rival Dresdner Bank in 2008, substantially bolstering its market position in Germany.

But low interest rates and lacklustre revenues from fees charged to customers – who have avoided many financial products during the crisis – have sent plans for the retail bank off course.

“Due to synergies realised from the takeover of Dresdner Bank and active cost management, costs have been developing as planned,” said Stephan Engels, chief financial officer. “But given that revenues remained below expectations due to the market environment, we will advance the strategic development of the segment.”

The “strategic repositioning” of the retail bank was a focus of a review of the bank’s business areas, Mr Engels said. Results are due to be presented in November.

Operating profits for the first six months at the bank’s slimmed-down investment bank fell from €521m to €75m. They declined by a smaller amount at Commerzbank’s “Mittelstand” bank lending to German business customers – which has been the most profitable part of its operations – and rose slightly in central and eastern Europe, where the main focus is Poland.

Quarterly net profits were affected by an €86m charge related to the sale of a majority stake in Bank Forum in Ukraine, announced last month.

Operating losses halved to €553m at the bank’s asset-based finance unit, including its troubled Eurohypo property finance arm, which is being shut because of an EU state aid measure. Commerzbank also decided this year to close its ship finance operations as it tries to cut risk.

Mr Engels said he expected operating profits to “continue to be under pressure” in the second half of the year, with a target for loan loss provisions “increasingly ambitious” as the economic downturn continued to bite.

Commerzbank said it had overachieved on filling a capital gap identified by the European Banking Authority in stress tests last year. It said its core tier one ratio – a regulatory measure of capital strength – improved from 11.3 per cent in March to 12.2 per cent at the end of June.

Via Ft.com.