THE EUROPEAN BANKS ARE BREAKING!
Commerzbank Profit Drops 93% on Greek Debt
By Nicholas Comfort, from Bloomberg
Commerzbank AG (CBK), Germany’s second-largest lender, said quarterly profit slumped 93 percent after writing down the value of Greek bond holdings.
Net income fell to 24 million euros ($34.4 million) in the three months to June 30, from 352 million in the year-earlier period, the Frankfurt-based bank said today in a statement. That missed the 34.4 million-euro average estimate of 11 analysts surveyed by Bloomberg. The shares rose the most in three months as operating profit at the “core bank” more than doubled.
Commerzbank booked 760 million euros of impairments on Greek sovereign bonds as European banks write down their holdings as part of a deal to help bail out the country. The gain in operating profit countered yesterday’s announcement that Chief Financial Officer Eric Strutz plans to leave when his contract expires in March.
“The earnings were very positive if you strip out the Greek writedown,” said Dirk Becker, a Frankfurt-based analyst at Kepler Capital Markets who recommends buying the shares.“It’s never good to unexpectedly lose a CFO, but at least he is staying until next year and it appears he wasn’t fired and is leaving for personal reasons.”
Commerzbank rose as much as 9.7 percent and was up 5.8 percent to 2.26 euros as of 9:15 a.m. in Frankfurt trading. The stock is the worst performer on Germany’s benchmark DAX Index (DAX)this year, slumping 49 percent. Deutsche Bank AG, Germany’s largest lender, fell 19 percent in the same period.
Earnings Targets
The bank said today that the debt crisis has hurt the stability of markets, a precondition of reaching its full-year earnings targets.
“The targets set in the year 2009 are still conditional upon stable markets, which we are presently only seeing to a restricted extent owing to the sovereign debt crisis,” Chief Executive Officer Martin Blessing said in the statement. “A return to more stable markets is dependent on how the current crisis develops.”
The bank follows BNP Paribas SA, Deutsche Bank and other European lenders in writing down holdings of Greek sovereign debt after signing the Institute of International Finance’s rescue proposal last month. The plan requires investors to take an average 21 percent loss on holdings that mature by 2020.
“We also carried on reducing our holding of securities from the peripheral countries of the euro zone and we intend to continue to pursue this reduction strategy,” Blessing said.
Sovereign Risk
Commerzbank cut its sovereign risks related to Greece to 2.2 billion euros as of June 30, from 3 billion euros six months earlier, the bank said. Italian risk was cut 10 percent to 8.7 billion euros in the period while exposure to Spain declined 6.5 percent to 2.9 billion euros and Portugal remained unchanged at about 900 million euros.
The figures for June 30 don’t include risks from asset-based finance shipping, the bank said.
Europe’s biggest banks stand to lose 20.6 billion euros on their Greek government bonds after lenders in the region pledged to contribute to the new rescue package for Greece announced on July 21.
No Conflict
Operating profit at the so-called core bank, which excludes asset-based finance where the Greek writedown was booked as well as the portfolio restructuring division, rose to 913 million euros in the quarter from 397 million euros. Earnings at all four divisions of the core bank rose. Commerzbank cited lower costs at its private customers unit and said a “stable” German economy benefitted business with mid-sized companies.
Commerzbank said it will probably have to put aside less money for risky loans this year. Loan-loss provisions are likely to be less than 1.8 billion euros in 2011 compared with the previous estimate of 2.3 billion euros, the lender said.
Commerzbank said June 7 that it completed a 5.3 billion-euro share sale in addition to raising 5.7 billion euros from selling conditional mandatory exchangeable notes to repay government.
Repaying Aid
Blessing said in April that the bank planned to repay about 14.3 billion euros in so-called silent participations to Germany’s Soffin bank-rescue fund by June through the sale of new shares and use of excess reserves. The lender received more than 18 billion euros from the state after agreeing to buy Dresdner two weeks before the collapse of Lehman Brothers.
Soffin maintained its stake of 25 percent plus one share in the lender. Commerzbank said in May that it had already repaid 4.3 billion euros of silent participations, a form of non-voting capital used in Germany, after completing the first step of the capital increase.
Dr. Pinna says:
What we are seeing in Europe is the reality of trying to maintain the high living standards of the Southern Europeans, who produce nothing, but consume everything.
BACCHUS, THE GREEK AND ROMAN GOD OF WINE
Will the Northern Europeans subsidize this living standard forever? Hardly!
The political system in Europe is totally dysfunctional! The governments represent the banks, not the taxpayers.
With revolts of general population going on throughout the Western world, including Israel(!), it is only a matter of weeks before the Germans and other Northern Europeans take to the streets to tell their governments who is paying the bill.
I predict riots in all the major northern cities as the taxpayers realize that they are supporting people drinking wine on the beaches of the Mediterranean.
