Commerzbank swings to loss as restructuring costs bite

Commerzbank AG updates

Commerzbank swung to a higher-than-expected loss in the second quarter as the struggling lender took a €200m writedown for a botched IT project and €500m of restructuring costs, highlighting the challenges for new chief executive Manfred Knof’s rescue mission.

The Frankfurt-based lender said that its radical restructuring, which envisages the culling of one in three jobs in Germany by 2024, was on track despite the additional challenges in the second quarter.

“We are driving all strategic initiatives forward and we are also ready to make tough decisions if necessary,” he said in a statement. Last month, Knof pulled the plug on an IT deal to outsource the securities settlement business to HSBC, which was agreed in 2017 and had been suffering from delays and cost overruns.

The write-off of previous investments in the project pushed the lender deep into the red. Commerzbank reported a net loss of €527m, compared to analyst expectations of €504m and a net profit of €183m a year earlier.

The loss would have been even bigger without a €100m bump from CommerzVentures, the lender’s venture capital arm which was an early-stage investor into the US fintech Marqeta, which listed on Nasdaq in June and has a market capitalisation of $14bn.

The bank also lowered its provisions for loan losses by 81 per cent year on year as the impact of the coronavirus pandemic on its borrowers eased.

Commerzbank reiterated its full-year guidance, saying that “revenues in 2021 should slightly exceed the previous year’s” and that it expects a “positive operating result”. It also stressed it has now booked more than 90 per cent of the €2.1bn in restructuring charges linked to Knof’s turnround plan, which runs until 2024.

The common equity tier 1 ratio — a key benchmark of balance sheet strength — was steady at 13.4 per cent of risk-weighted assets in the second quarter and the bank said it was “likely” that it would remain at around 13 per cent in the second half.

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