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Amid Deutsche Bank woes, rival German lender announces a major overhaul

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Thomas Lohnes | Getty Images

Germany's second largest bank by assets, Commerzbank, announced an overhaul of its structure on Thursday following what it called "current market rumors."

The lender said Thursday that it would make a net reduction of 7,300 jobs at the company and will stop paying dividends for the time being amid a drive to sustainably increase its profitability by 2020. The cost of the restructure would be in the region of 1.1 billion euros ($1.2 billion), it said in a statement, and the plans would be ratified by its supervisory board on Friday.

Shares under pressure

The announcement comes as its rival Deutsche Bank has fiercely defended its capital position amid a rout in the stock markets for financial firms. Deutsche Bank's stock has slid over 50 percent so far this year and the cost of insuring exposure to its debt has risen sharply. It has come under pressure from aggressive short-selling, notably from some large hedge funds.

Meanwhile, Commerzbank shares have fallen 38 percent year-to-date and were down 1.25 percent Thursday with news of the dividend being cut.

The latest concerns regarding European financials come after the U.S. Justice Department suggested Deutsche Bank pay $14 billion to settle a number of investigations related to mortgage securities. The probes refer to the way it sold these securities before the financial crash of 2008. It came after initial worries about Deutsche Bank surfaced earlier in the year, with investors detailing concerns over its exposure to the energy sector and a possible cash crunch.

There's been speculation that the two banks could even merge as well as conflicting reports this week that the German government is preparing a backstop for its troubled lenders.

Hans Michelbach, a financial expert in Bavaria's Christian Social Union (CSU) and a senior lawmaker in Chancellor Angela Merkel's conservative bloc, said Thursday that Germany will not grant any more state aid for ailing banks.

"I cannot imagine that the state will repeat something like that," he told Deutschlandfunk radio, according to Reuters.

His words come after repeated denials by the German government and the country's financial regulator that there would be an aid package.

Deutsche Bank itself has repeatedly defended itself over recent weeks, telling CNBC that there is "no reason to worry" and that the bank had a "comfortable cushion."


Speculation 'misplaced'

Meanwhile, Mario Draghi, the president of the European Central Bank, has had to defend himself, telling reporters Wednesday that the ultra-loose polices of the bank were not responsible for the problems at Deutsche.

Some analysts warn that state aid may be the only way out for the German lenders, particularly Deustche Bank, but many - like political risk consultancy Eurasia Group - believe that speculation is misplaced.

"Even in a worst case scenario of a 14 billion euro DoJ fine, capital shortfalls would be covered by bail in, obviating the need for German taxpayer money," a team at the firm said in a note on Thursday.

"(The speculation) misunderstands EU rules on bank rescues, politics in Berlin and the capital situation of the bank."