Commerzbank Earnings 2Q 2012: Germany's Second Largest Bank, Fears 'Collapse Of The Monetary Union'
Reuters | Posted: 08/09/2012 6:23 am Updated: 08/09/2012 8:37 am
* Commerzbank Q2 net profit misses forecasts
* Says FY loan loss provision target looks increasingly ambitious
* Says getting tougher to pay dividend for 2013
* Bank to review strategy, present plan in November
* Shares down 3.6 pct, biggest blue-chip loser (Releads, adds CFO quotes, analyst, share price)
FRANKFURT, Aug 9 (Reuters) - Germany's second-largest bank Commerzbank braced for a worsening of the euro zone crisis and gave a grim profit outlook on Thursday, warning it may not pay a dividend in 2013.
The bank, which is 25 percent owned by the German state, said it would restructure its retail business and continue to clear out toxic assets in response to sliding profits.
The bank's second-quarter group net profit dropped to 275 million euros ($340 million), missing analysts' forecasts of 388 million as retail and investment banking revenues slumped and provisions for bad shipping loans spiked. It warned that second-half profits would be lower still.
"The greatest downside risk remains an uncertainty shock from an escalation of the sovereign debt crisis - i.e. the collapse of the monetary union," Commerzbank said in its quarterly report, adding it thought that risk was higher now than in autumn last year.
Against this background, Commerzbank expects the net profit in the second half of the year to be "significantly below" the net profit of the first six months, said Chief Financial Officer Stephan Engels, adding it was becoming tougher to pay a dividend for 2013. The bank has no plans to pay a dividend for 2012.
After pulling back from shipping finance, commercial real estate and public sector lending, Commerzbank now says it will overhaul its retail branch network as economic pressures mean clients are steering clear of higher margin services.
Germany's retail banking market is highly competitive and industry experts say that Commerzbank - which bought rival Dresdner bank in 2008 - still has not focused enough on costs cuts and could easily slash another 20 percent of staff.
Commerzbank said it would present a new strategy on Nov. 8. In the first half of the year it focused on fulfilling new capital rules, designed to help the financial sector weather the euro zone storm.
The bank, which received an 18 billion-euro bailout in the wake of the financial crisis and collapse of Lehman Brothers, has spent years restructuring as Greek debt writedowns and a slowing euro zone economy hurt its efforts to get back on its feet and build capital to meet new European rules.
The Frankfurt-based lender was found to have a 5.3 billion-euro capital shortfall by the European Banking Authority in late 2011, but on Thursday said it had exceeded the requirement by 2.8 billion euros.
However, the process of reaching that level required the bank to slash 30 billion euros in risky assets from its balance sheet, drop its 2012 profit targets, postpone dividend payments and limit new business to clients in Germany and Poland
The euro zone debt crisis and weak economy have hit banks across Europe, with lenders including Deutsche Bank, Switzerland's UBS and Spain's BBVA as well as France' BNP and SocGen reporting dismal second-quarter earnings.
At the end of the second quarter Commerzbank's core tier one ratio, a measure of a bank's security relating to the amount of capital it holds, stood at a solid 12.2 percent, with capital levels exceeding standards set out by the European Banking Authority by 2.8 billion euros at the end of June.
Nomura banking analyst Omar Keenan said that Commerzbank was continuing to outperform on capital but would likely see its revenue remain under pressure given the current environment.
"Loan loss provisions show that while commercial real estate might have improved, shipping losses seem to have increased," he said.
Provisions for bad loans in its 17 billion euro shipping portfolio spiked and Commerzbank warned of more to come.
"We expect impairments (in ship financing) in 2012 that will exceed those of 2011," it said.
Commerzbank said it expects its cost base to rise in the second half of the year with its target for loan loss provisions of 1.7 billion euros becoming increasingly hard to achieve.
In its private customers unit, operating profit slumped 82 percent as cost cuts could not compensate for weaker revenues from low interest rates and as clients placed fewer securities trading orders.
($1 = 0.8093 euros) (Reporting by Arno Schuetze and Edward Taylor; Editing by Sophie Walker)