Commerzbank, Germany’s second-largest bank, sees the glass at its online banking unit as half-full, but a London investor says it’s half-empty.
In a blistering letter obtained by Handelsblatt, activist investor Petrus Advisers says Comdirect, which has about a fifth of its shares held by the public, should be making a lot more money. The letter, addressed to Commerzbank CEO Martin Zielke, demands fresh blood in management and on the board of the unit, complaining that current members schooled in branch banking don’t get online banking.
The letter, signed by managing partner Klaus Umek and partner Till Hufnagel, doesn’t mince words. It considers Commerzbank a “dominating shareholder who has no smart ideas.” Petrus says it owns 1 percent of Comdirect shares, making it the second-largest shareholder, far behind Commerzbank with 82 percent. Petrus complains that small shareholders are being “choked” by the parent bank’s cost structure.
“The capital market despises your leadership and goals for Comdirect.”
The cost-income-ratio at Comdirect is nearly 70 percent – which means the company must invest 70 cents to earn one euro. This compares unfavorably to Commerzbank’s own online unit in Poland, mBank, where the ratio is 45 percent, let alone the industry leader, ING Diba, with 40 percent. Germany also has had its share of online banking successes. BayernLB unit DKB also achieved a favorable 45 percent ratio.
The problem at Comdirect, a Commerzbank insider says, is that its IT infrastructure is derived from the parent bank, which requires a much more complex structure than other online banks. Comdirect could save a lot of money by buying the software it needs from a third party. The ING unit achieves such a low cost-income-ratio because it has its own IT. The problem for the parent bank with acquiring separate IT for Comdirect would be the less-efficient use of its own IT infrastructure.
The London investment group is equally frank about management. The letter accuses Mr. Zielke of stuffing Comdirect’s management and board “with your circle of friends from your Dresdner Bank days.” (Mr. Zielke started his professional career at Dresdner in 1990; Commerzbank acquired Dresdner in 2009.)
Incentives for Comdirect management are based on the parent bank’s share price. This is “an utter and disconcerting violation of corporate governance best practices,” the Petrus partners say. “The capital market despises your leadership and goals for Comdirect,” they add for good measure, noting analysts that generally recommend financial stocks all have Comdirect at hold or sell.
Petrus wants Comdirect to trim “at least” €25 million from its cost structure. It also wants to see non-Commerzbank personnel installed in management and the board.
The broadside from Petrus reflects increasing shareholder activism at German companies, especially by foreign investors. Swedish investment group Cevian, for instance, is fighting Thyssenkrupp’s plan to merge its steel operations with Tata Steel. Cevian has also worked hard to nurse construction firm Bilfinger back to health, installing one of its own partners as board chairman. Commerzbank itself could also face additional pressure after US hedge fund Cerberus acquired a 5-percent stake.
But Petrus’s critique appeared to fall on deaf ears. Comdirect’s pretax return on capital of 17 percent is a figure Commerzbank can only dream of for its general banking business. The company rejected the criticism from Petrus, saying it was quite content with developments at Comdirect. Customers and deposits both grew significantly last year. Mr. Zielke recently commented in a Handelsblatt interview that as long as parent and online unit were successful, he saw no reason for any changes.
QED (thus it has been demonstrated) is what Petrus might add as a postscript. The response confirms its criticism – the Frankfurt bank managers don’t really get it. Petrus wants a full glass, and Commerzbank is happy with the way things are.
Yasmin Osman is a senior financial editor and Andreas Kröner a financial correspondent for Handelsblatt in Frankfurt. Darrell Delamaide adapted this story for Handelsblatt Global. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org