New tricks

Doubts grow on Commerzbank strategy

main source Bloomberg – Commerzbank CEO Martin Zielke Feb 9 2017 annual Q4 results press conference Frankfurt – 75502984
Mr. Zielke sounds more convinced than he looks. Source: Bloomberg

Germany’s Commerzbank may be about to suffer the ignominy of crashing out of the blue-chip DAX index of 30 leading shares next month. Its market value and trading volumes aren’t high enough for it to play in the big league.

The 148-year-old bank, Germany’s No. 2 behind Deutsche Bank, has been in the DAX ever since the index was launched three decades ago and an eviction at the upcoming review by the stock exchange on September 5 would be just the latest symbol of its decline.

Takeover speculation helped the stock surge 70 percent last year – Italy’s Unicredit and France’s BNP were rumored to be taking an interest – has evaporated and doubts are creeping in about whether Commerzbank is on the right track. CEO Martin Zielke doesn’t appear interested in a merger, although analysts said a link with struggling market leader Deutsche Bank could yield synergies. To him, size is less important than the speed with which banks embrace digital change.


He expects four megatrends to transform the financial sector in the coming years: blockchain technology, big data analysis, clouds and artificial intelligence. To prepare the bank for the changes, he ordered a digital transformation under his “Commerzbank 4.0” strategy that he unveiled in 2016. He wants 80 percent of Commerzbank’s operations digital by 2020 to boost efficiency and cut costs. But his ambitious program was hampered by two IT glitches in recent weeks that prevented customers from getting at their money for several hours.

It also plans targeted growth to offset the impact of record low interest rates on its margins in its home market. But the bank has yet to prove that its strategy is paying off. Its earnings from corporate banking fell sharply in the first six months and while it boosted its income in retail banking, it makes less money from new customers than it has in the past.

Analysts now expect the bank to miss its €9.8 billion ($11.5 billion) revenue target for 2020. But Chief Financial Officer Stephan Engels isn’t ready to give up just yet. “If there’s a danger of missing a target one has to fight and if necessary adjust,” he said.

Commerzbank’s decline started in the noughties when it bought mortgage bank Eurohypo and ailing cross-town rival Dresdner Bank. It was bailed out by the government in the 2008 financial crisis and has been in a state of permanent restructuring ever since.

Like most German banks, it’s suffering from the European Central Bank’s ultra-low interest rates. The impact on Commerzbank’s bottom line has been huge. An increase in market interest rates by just 1 percent would boost its net interest income by €500 to €550 million in the first year, rising to €900 million to €1 billion in the fourth year, the bank has calculated.

Try, try again

It plans to boost its retail customer numbers by at least two million between 2016 and 2020 and has already won some 800,000. But there are internal and external doubts about whether it can significantly boost earnings through them.

The revenue it generated per new customer fell by 30 percent on average between 2015 and 2017.

Its corporate client business saw revenue fall 6 percent in the first half while operating income fell almost a third. Commerzbank has given up hope of a turnaround here this year and now expects a full-year decline instead of an increase in adjusted revenue.

The new supervisory board chief, Stefan Schmittmann, has been talking to many experts outside the bank and asking critical questions. But Mr. Zielke said he didn’t expect major changes in strategy at a meeting between the management and supervisory board scheduled for the end of September.

“I am firmly convinced that the bank is on the right path strategically. Are we there where I would like to get to? Of course not.”

But revamping an old-established bank set up 150 years ago was considerably more difficult than managing a start-up, he said. “If you do such a fundamental change in the business model you can’t do it overnight.”

Andreas Kröner covers financial services for Handelsblatt in Frankfurt. David Crossland adapted this story into English for Handelsblatt Global. To contact the author:

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