Commerzbank Unveils Job Cuts in Biggest Overhaul Since Bailout - Bloomberg

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Commerzbank AG Chief Executive Officer Martin Zielke plans to reduce about one in five jobs, suspend dividends and shrink securities trading in the biggest overhaul since the global financial crisis forced the German lender into a bailout.

Under the draft plan, which was presented to the supervisory board, Commerzbank will cut 9,600 jobs, merge its Mittelstandsbank, catering to small and medium-sized companies, with the corporates and markets unit and scale back securities trading operations, the Frankfurt-based bank said in a statement on Thursday. The management board on Friday will decide on the restructuring plan, which will cost about 1.1 billion euros ($1.2 billion) .

Zielke, 53, has been under pressure to counter a slump in earnings that forced him to scale back full-year profit targets just months after taking the helm. At Deutsche Bank AG, CEO John Cryan has struggled to reverse a slump in shares by eliminating thousands of jobs and cutting risky assets as Europe’s largest lenders grapple with volatile markets, negative interest rates and tougher regulatory scrutiny.

“We have long talked about the need for Commerzbank to cut costs given the benign revenue environment,” Nicholas Herman and Andrew Coombs, analysts at Citigroup Inc., wrote in a note on Thursday. “We’re encouraged by these developments. However, the profit targets are ambitious and Commerzbank has a poor track record of delivering.”

The shares fell 2.3 percent to 5.86 euros at 12:13 p.m. in Frankfurt, erasing earlier gains. The bank has lost about 39 percent of its market value this year. Deutsche Bank, which houses Europe’s largest investment bank, has dropped about 52 percent in 2016.

Under previous CEO Martin Blessing, who stepped down earlier this year, the bank announced measures to eliminate about 5,200 jobs by 2016 to help lower costs and resume dividend payments. The company has struggled to restore investor confidence since its takeover of Dresdner Bank in 2008 forced it into 18 billion-euro bailout, with Blessing tapping investor demand for high-yielding assets and shrinking a pile of delinquent shipping and commercial real-estate loans.

Job Cuts

Zielke is halting payments to shareholders again after the lender paid a dividend of 20 cents per share for 2015, its first payout since 2007. It was expected to pay a dividend of 30 cents per share for this year, according to the Bloomberg Dividend Forecast.

Under the latest overhaul, the bank will cut costs to 6.5 billion euros, taking the cost to income ratio below 66 percent. The bank targets a return on tangible equity of at least 6 percent by the end of 2020, with the common equity Tier 1 ratio, a measure of financial strength, seen above 13 percent, according to the statement.

Commerzbank will focus on private and small businesses as well as corporate clients to drive earnings. While some 2,300 jobs will be created, the restructuring plan will result in the net loss of 7,300 full-time positions, according to the statement. 

At the end of last year, Commerzbank had 14,920 employees at its private customer unit, 5,379 at the Mittelstandsbank and 1,883 at corporates & markets, which houses securities trading, according to its annual report.

‘Promising Plan’

“The rough plan presented today sounds promising,” said Dieter Hein, an analyst at Fairesearch-Alphavalue with a buy recommendation on the shares. “It looks like Zielke is finally addressing all the issues that the previous management under Blessing had been hesitant to tackle.”

The goodwill and intangible assets of the two merged units will cause a writedown of about 700 million euros in the third quarter, which the bank expects to result in a loss in that period. In the full year, the lender expects a “small net profit,” when targeting revenue of between 9.8 billion euros and 10.3 billion euros by 2020.

“In a normalized interest rate environment, revenues could rise to over 11 billion euros and the cost-income ratio could fall to around 60 percent,” the bank said.

Commerzbank, which is still partly owned by the German government, plans to inform investors in detail about Zielke’s strategy at an investor day in London on Oct. 4.

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