Commerzbank 'Ahead of the Herd' on Capital: CFO
Banks feel squeezed by the European Banking Authority's request to raise capital, and the measure is pushing some banks out of some markets, but Commerzbank has not suffered from it, Eric Strutz, the bank's chief financial officer, told CNBC on Thursday.
The European Banking Authority (EBA) has told 31 banks in the European Union to find extra money to raise their core capital to at least 9 percent by the end of June to avoid a repeat of the 2008 financial crisis that forced governments to supply banks with massive amounts of capital.
The banks must let their national regulators know by Friday how they plan to raise the capital and Commerzbank announced earlier on Thursday that it had already set aside 3 billion euros ($3.9 billion) out of a total 5.3 billion euros it needs and that it would reduce the need for a further 3.3 billion euros.
Commerzbank's German-listed shares surged 13 percent after the announcement and closed 14.8 percent higher.
"We are a little bit lucky here because we are ahead of the herd ...overall, the EBA and the regulators are also looking to see that lending supply is not reduced in the EU," Strutz said.
The bank, which still has about 1.9 billion euros in state participation, identified areas that are not strategic and is reducing credit assets outside the euro zone to comply with the EBA's request, he said.
But the EBA's measure was counter-productive for banks in the European Union, because it forces them to retreat toward their core markets, Strutz said.
"Part of the globalization which was happening over the last 25 years, because of EBA is being re-nationalized," he said.
Commerzbank is not really affected by this trend because it has focused mainly on Germany over the past 10 years and it may even benefit from it, according to Strutz.
"We have a strong position, and to be honest I don't mind if some of my international competitors are now retracing back to their own countries," he said.
Europe Can Fix Its Problems
The European Central Bank's long-term refinancing operation, under which the ECB has offered banks unlimited loans at 1 percent interest rate for three years, was "the right step" because some of the banks, especially in southern Europe, had high funding costs, Strutz pointed out.
"You cannot continue to do lending when you yourself have high funding costs," he said, but added that the fundamental issues still needed to be solved. "The ECB measure is productive, the question is, we need to fix some of the underlying problems… the underlying problems are the sovereigns and they need to fix their problems."
"If the whole economy is not growing, if it's shrinking… how can you then lend to the corporates?" Strutz added.
He said the bank had more than halved its portfolio of public debt to around 90 billion euros because, after the collapse of Lehman Brothers, "the funding markets have changed so much and what used to be a nice spread business is not a nice spread business anymore, and that's why everybody is reducing it."
But Strutz believes most of the debt problems in the euro zone can be sorted out, and the euro will survive, citing the example of Ireland as that of a country that has implemented the reforms needed.
"It will take time. There's been a lot of debt accumulated in Europe, a lot of countries haven't done their homework but have promised to do it in the future," he said.
"We believe Italy can solve its problems. If you look at the combined private and public debt, it's lower than in most countries," he added.
Greece is a separate case, he said, as the country's debt to gross domestic product ratio is too high, but some countries that are perceived as weak are actually strong, according to Strutz.
"Private wealth in some of these countries is very strong. Private wealth per capita is sometimes higher than in Germany so of course something can be done," he said.