Commerzbank sees lower revenue as Knof drops growth target

[FRANKFURT] Commerzbank posted its biggest quarterly loss in more than a decade and warned that revenue will shrink this year as new chief executive officer Manfred Knof ditches a failed growth strategy in favour of deep cost cuts.

Revenue in the last three months of 2020 declined 6.6 per cent, according to an earnings release on Thursday. The lender recorded a quarterly loss of 2.7 billion euros (S$4.3 billion) after writing down asset values hit by the pandemic and booking costs for future job cuts. That's the biggest loss since at least 2006, according to data compiled by Bloomberg Intelligence.

Mr Knof, who took over in January, plans one of the deepest restructurings in Commerzbank's recent history after two efforts by his predecessor Martin Zielke to grow his way to profitability through client acquisitions failed. The new CEO is shedding about a third of the German workforce, closing almost half the retail branches and shuttering roughly 30 per cent of the bank's foreign offices, in an effort to save 1.4 billion euros a year.

"We want to be sustainably profitable and shape our own destiny as an independent force in the German banking market," Mr Knof said in the statement.

Commerzbank said it plans to focus on profitable client relationships, leading to the drop in revenue this year. The corporate clients division has already begun to cut back the loan supply to foreign companies as part of a strategy to focus on German clients.

The lender expects to make an operating profit this year as loan loss provisions are forecast to drop by at least 500 million euros from last year and as much as 1 billion euros. The bank set aside 1.75 billion euros for credit risk last year, including 681 million euros in the final quarter.

It "will be a challenge to be positive on the net income side" in 2021, chief financial officer Bettina Orlopp said on Bloomberg TV.

Still, Commerzbank said Thursday that by the end of the new turnaround plan, there will be a "potential to return overall up to 3 billion euros" to investors through dividends and share buybacks in 2023 and 2024.

For 2020, Commerzbank posted a loss of 2.87 billion euros, in line with a guidance given last week. The result includes restructuring expenses of 814 million euros and a hit of 1.58 billion euros from lower asset values.

Mr Knof has pledged to use existing funds to pay for the restructuring he developed along with supervisory board Chairman Hans-Joerg Vetter. He also vowed to keep a cushion of at least 2 percentage points between the actual capital ratio and the minimum required by regulators.

BLOOMBERG