Commerzbank's weak earnings' outlook disappoints investors

[FRANKFURT] Commerzbank said it expects net profit to remain low this year as it reported flat fourth quarter earnings on Thursday, blaming low interest rates, weak loan demand from German companies and its exposure to the shipping industry.

Germany's second-largest lender, which announced in September it would cut more than a fifth of its workforce and suspend its dividend as it tackles weak profits and a shift to online banking, also said it was cutting 2016 bonus payments by a third or about 100 million euros.

It reported flat fourth-quarter revenues of 1.3 billion euros (US$1.4 billion) and Chief Executive Martin Zielke indicated that profit would remain low this year but did not give a specific earnings target.

Asked whether the bank would just about break even in 2017, Mr Zielke told a press conference. "I can almost leave it at that (assessment)," without elaborating on whether that meant it would be close to the meagre 279 million euro net profit it reported for 2016.

Shares in Commerzbank's shares were down 3.2 percent by 1215 GMT, at the bottom of Germany's blue-chip index.

Commerzbank took a hit of 212 million euros in the fourth quarter from the European Central Bank's negative interest rates that were supposed to ignite growth in the euro zone, but which cut banks' margins. "We cannot yet be satisfied with the quality of our earnings," Mr Zielke said.

The bank reported a fourth-quarter net profit of 183 million euros (US$195 million), beating analysts' average forecast for 154 million euros. "A closer look shows that earnings were only in line with expectations if one-offs are accounted for," said Ingo Frommen analyst at brokerage LBBW.

Bigger rival Deutsche Bank also disappointed investors last week when it reported a 1.9 billion euro quarterly loss as its clean-up bill weighed on earnings and peers took some of its market share.

Commerzbank said it expects to set aside the same amount of money this year as in 2016 to cover bad loans at its retail and corporate bank, but sees provisions for bad shipping loans rising to 450-600 million euros. In 2016, it increased group provisions by a third to 900 million euros, mainly due to its shipping industry exposure.

The bank has a 3.5 billion euro exposure to the shipping sector and 26 percent of its shipping loans are non-performing.

Shipping firms are suffering due to a glut of vessels and sluggish global trade and the world's largest container shipping group, Maersk, reported a US$2.7 billion quarterly loss on Wednesday.

Commerzbank said its view on the sector had not improved.

It also said it aims to keep its capital ratio above 12 per cent this year and maintain a stable cost base.

Operating earnings at Commerzbank's cash cow Mittelstandsbank unit, which caters to the German economy's backbone of small and medium-sized companies, were up quarter-on-quarter as provisions fell.

The retail bank saw flat operating profit due to pressure on its deposits business, where negative interest rates weighed, despite cost cuts and rising demand for mortgages.

REUTERS