Sub-Prime Problems

Despite Attempts to Move On, Commerzbank, Germany's Second-Largest, Still Grappling With 2008 Crisis

Martin Blessing, Commerzbank Chief Executive, is trying hard to restructure the bank. Source: Reuters.
Martin Blessing, Commerzbank Chief Executive, is trying hard to restructure the bank.

Despite ongoing restructuring, including a major sale of assets, there are still several problems facing Commerzbank, Germany´s second-largest lender. The bank, which is based in Frankfurt, plans to cut staff in the face of weak revenues, but has received regulatory warnings for IT failures and has stumbled in raising money amid regulatory concerns about the sale of an exotic form of bank bond, sources told Handelsblatt.

Commerzbank, which has suffered from the ill-timed takeover of rival Dresdner Bank in 2008 and two mortgage lenders, wants to outsource jobs at its finance department to grapple with lower-than-expected interest rate income, Handelsblatt has learned from sources inside the bank.

“The organization needs to be leaner, more efficient and cost effective,” a source said.

A Commerzbank spokeswoman, who delined to be named, citing bank policy, said: “In light of regular checks of operational processes Commerzbank is planning restructurings in the field of finance.”

 

 

The financial services regulator, BaFin, performed a special audit of Commerzbank. Source: DPA.
The financial services regulator, BaFin, performed a special audit of Commerzbank. Source: DPA.
The financial services regulator, BaFin, performed a special audit of Commerzbank. Source: DPA.

 

Low interest rates in Europe, which have pushed down the price at which Commerzbank can sell its loans, and the sale of risky real estate and ship credit portfolios have hit revenues, requiring cost cuts.

Returns at the bank, which received 18.2 billion euros of state aid in 2008 and 2009, are not developing as the executive board had expected it to be, sources at the bank told Handelsblatt.

“This actually applies to all areas,” a Commerzbank manager said.

Commerzbank subsidiary Eurohypo, a troubled mortgage lender, will close its six domestic branches three months earlier than planned because the subsidiary’s credit portfolio is winding down quicker than expected, a bank employee said.

About a hundred employees will lose their jobs, and the bank’s staff is worried whether more cuts will follow.

Low interest rates in Europe, which have pushed down the price at which Commerzbank can sell its loans, and the sale of risky real estate and ship credit portfolios have hit revenues, requiring cost cuts

In addition to outsourcing operations in the finance department, Commerzbank is considering similar steps in other areas, sources told Handelsblatt.

Commerzbank has already improved its operations after Germany’s Federal Financial Supervisory Authority detected three failures at the bank’s IT management.

The supervisor gave the bank three warnings, including one for mismanaging who has the right to access data and processes within the bank, sources told Handelsblatt.

The inadequate IT-infrastructure has not caused any internal nor external damages, nor were any security breaches caused, the sources said.

A Commerzbank spokeswoman declined to comment when asked which warnings Commerzbank had received.

Commerzbank has paid close attention to costs and capital to help repay the state aid. It has already paid back 16.2 billion euros of state aid capital.

It had planned to issue contingent capital bonds, known as coco bonds, which are written off or devalued in the

Translating and additional reporting by Gilbert Kreijger

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