Commerzbank faces pressure from competition, trade outlook

By BLOOMBERG

FRANKFURT • Relentless competition is keeping Commerzbank AG’s long-planned turnaround frustratingly out of reach, and the prospect of a trade war is threatening to push it back further.

Profit and revenue at Germany’s second-largest listed bank beat the highest estimate in the second quarter, but the bank cut its revenue forecast for its corporate division, and also signalled slowing growth in its retail segment. The shares fell.

Commerzbank has been struggling to find a sustainable future in a saturated German market for nearly a decade, making it a perennial takeover target. While it has brought in nearly 150,000 new retail customers alone this year, the bank’s corporate segment has faltered and is facing a difficult second half, as trade concerns weigh on its internationallyfocused customer base.

“We still have a very competitive environment” in the corporate clients segment, CFO Stephan Engels said in a Bloomberg Television (TV) interview with Matthew Miller.

While the division made more loans and added clients, “monetising that growth will probably take a bit longer than originally anticipated”, Engels said.

While the loan book expanded in the quarter, profit margins and the bank’s core capital level both suffered, and the bank raised its cost forecast for this year. The strong bottom line was due to non-core segments, according to Goldman Sachs Group Inc analyst Jernej Omahen.

CEO Martin Zielke has vowed to lift annual revenue to at least €9.8 billion (RM46.4 billion) in 2020, the level at which it was in 2015, the year before he announced his restructuring plan.

Engels said in a conference call that some of the bank’s growth initiatives didn’t deliver results as quickly as previously planned, and labelled the 2020 revenue target as “ambitious”. On Bloomberg TV, he called it “the right goal to fight for”.

Commerzbank’s two main units had mixed fortunes in the quarter. It revised down its revenue outlook for the corporate clients unit, led by Michael Reuther, after another year-on-year decline in the quarter.

That’s despite the fact that the unit has added customers faster than expected.

“The mood among German corporates has dimmed,” the bank said in its statement, flagging the “potential negative impact of rising protectionism” and instability in Europe.

“The fear is that corporate willingness to invest — which is crucial for the corporate lending business — will also suffer as a result.”

The retail bank under Michael Mandel, which accounts for over half of group revenue, performed better, with revenue up 8% from a year earlier. However, even here, growth in new customers slowed due to the cost of winning new accounts.

Engels acknowledged that the pace of client acquisition is now running below the fullyear target rate, but the bank said it “will not engage in the current pricing competition for new retail customers at any cost”.

Commerzbank fell as much as 4% and was down 1.8% at 2pm in Frankfurt, bringing the stock’s drop this year to about 30%. The stock is one of the worst performers in the European financial sector this year.