Earnings

Commerzbank profit slumps 21% as loan loss provisions spike, but beats expectations

Key Points
  • The German lender expects a net loss for the full year as it sets aside 469 million euros for bad loans due to both the coronavirus pandemic and the insolvency of payments giant Wirecard.
  • Chairman Stefan Schmittman and CEO Martin Zielke announced their sudden resignations early last month amid pressure from shareholders to reduce costs.
  • Commerzbank shares advanced on Wednesday as the fall in profit was not as drastic as the market had expected.
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Our outlook for full-year result is negative, Commerzbank CFO says

Commerzbank on Wednesday reported a 21% fall in second-quarter net profit to 220 million euros ($259.7 million) on the back of a sharp increase in loan loss provisions.

The German lender expects a net loss for the full year as it sets aside 469 million euros for bad loans due to both the coronavirus pandemic and the insolvency of payments giant Wirecard. However, shares advanced on Wednesday as the fall in profit was not as drastic as the market had expected.

Wednesday's earnings report comes amid a leadership crisis at Germany's second-largest bank. Chairman Stefan Schmittman and CEO Martin Zielke announced their sudden resignations early last month amid pressure from shareholders to reduce costs.

Commerzbank has since appointed Hans-Jörg Vetter, former head of state-owned lender LBBW, as its new chairman, despite vocal opposition from its second-largest shareholder, U.S. private equity firm Cerberus Capital Management.

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Commerzbank Chief Financial Officer Bettina Orlopp told CNBC on Wednesday that the bank would wait for a new CEO to be appointed before detailing further cost-cutting measures.

Orlopp also told CNBC's Annette Weisbach that the bank foresees a "U-shaped" economic recovery depending on the developing pandemic numbers and "positive numbers" in 2021.

"We also assume clearly that there will be some cases with respect to loan loss provisions coming in for the third and fourth quarter," Orlopp said.

"This is why we booked in already a forward-looking top level adjustment to account for that."

Commerzbank did not identify Wirecard in its earnings report, but noted that a "single case" was responsible for an additional 175 million euros in loan loss provisions added in the second quarter. Wirecard entered insolvency in June and its CEO Markus Braun was arrested following an accounting scandal in which it admitted that 1.9 billion euros on its balance sheet likely did not exist.

"We had already said last quarter that given the revenue situation, loan loss provisions due to the corona crisis, that it would be very aspirational to get a positive net income (for 2020)," Orlopp said.

"Now we have this single case coming into play and we also clearly said that we want to book for those restructuring charges in Q3 and Q4 to really make progress on our cost reduction, and therefore the outlook is negative for the net income."