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Subprime Exposure Hurts Commerzbank's Profit

Commerzbank raised its third-quarter net profit by more than half thanks to a one-off German tax gain but missed expectations after the gain was marred by a big write-down on its subprime investments.

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Germany's second-biggest bank also confirmed that Chief Executive Klaus-Peter Mueller would step down next May and that board member Martin Blessing would become the new CEO. Sources told Reuters last week Mueller is set to become chairman.

Commerzbank on Tuesday posted net profit of 339 million euros ($493 million) in the third quarter, after writing down 291 million euros on assets exposed to the market for risky mortgages in the United States.

Its profit was below the average forecast in a Reuters poll for quarterly net profit after minorities of 451 million euros.

Commerzbank shares rallied on relief that the subprime losses would not be worse, with the share rising more than 4 percent to 28.31 euros by 1330 GMT, outpacing a 0.4 percent gain among European banking peers.

Commerzbank said in July that it would book 80 million euros to cover expected subprime-related losses but CEO Mueller said last month that this would not be enough.

Like other European banks, Commerzbank had been hit by investor worries about its exposure to subrime risks, with its share down 6 percent over the last two months, even after Tuesday's sharp gain.

The shares trade at about 8.6 times estimated 2008 earnings, compared with a multiple of 9.3 for European banking peers, a discount that is not justified by the bank's earnings prospects, research analysts at Equinet said.