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Commerzbank cuts full-year profit outlook

Commerzbank says consolidated net income for this year will probably be lower than in 2018, down from its target of a slight increase, because of lower interest rates and higher taxes this quarter.


COMMERZBANK AG downgraded its full-year profit outlook, marking a second retreat in just weeks by chief executive officer Martin Zielke as he grapples with rock-bottom interest rates and increased competition.

The bank said consolidated net income for this year will now probably be lower than in 2018, down from the lender's target of a slight increase, because of lower interest rates and higher taxes this quarter. The more pessimistic outlook comes after the lender abandoned its ambitions of increasing revenue this year at the end of September.

Mr Zielke also then unveiled a new round of cost cuts as well as a fresh set of longer-term financial targets after a period in which he'd successively scrapped most of the bank's previous goals. Commerzbank has been hit by margin erosion through tough competition in its home market and negative interest rates set by the European Central Bank and said on Thursday that conditions have further worsened.

"The main reason for the adjustment was the uncertain macroeconomic environment, in particular the worsening global trade conflicts," Commerzbank said in the statement. "The further monetary policy easing announced by the European Central Bank in September and the resulting pressure on margins will also have a negative impact on earnings."

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Several top investors and regulators have privately expressed scepticism about the latest turnaround plan, people familiar with the matter have said. In addition to promising to reduce the workforce by over 2,000, Mr Zielke has also said he's selling one of the company's strongest profit engines, its Polish subsidiary mBank, while saying profitability will remain well below that of the competition for at least the next four years.

Commerzbank last week released preliminary results for the third quarter showing net income jumped 35 per cent in the period as risk provisions and other costs declined. The bank also sold a unit in the quarter, accounting for one-off revenue of 103 million euros (S$155 million).

The corporate clients division, which has long been a particularly sore spot, continued to show a weak performance as revenue fell for a fifth consecutive quarter. The current division head Michael Reuther, will be succeeded in January by former ING Groep NV executive Roland Boekhout. The bank is also seeing more change in the board, with chief financial officer Stephan Engels set to join Danske Bank A/S.

Though the lender's other core division, the one catering to retail clients, posted revenue growth, most of that came from the Polish subsidiary it's now seeking to sell.

By contrast, the German retail unit, which is the division's biggest source of revenue by far, contracted 6 per cent. The bank has said it's shifting its focus from rapid client acquisition to getting existing clients to spend more money on banking services.

As part of the September revamp, the lender also decided to scrap its previous promise - and a major element of its previous marketing campaign - to keep a network of about 1,000 branches in Germany. The retail division under Michael Mandel said it's going to close about a fifth of those. BLOOMBERG

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