LONDON, Sept 29 (IFR) - Commerzbank is to scale back trading activities, cut 9,600 jobs across the group and merge its corporate and markets activities with its Mittelstandsbank into a wider unit serving all corporate clients in a bid to strengthen its operations and reduce earnings volatility.
The group will write off an estimated 700m from the value of these combined businesses resulting in a net loss in the third quarter, even though operating profits are expected to be roughly the same as in the preceding quarter.
The bank said reducing markets trading activity will “reduce earnings volatility and regulatory risk and ... free up capital to be invested in core client businesses”.
Commerzbank said it will book “considerably higher” losses on loans primarily in the shipping market, which is experiencing “ongoing weakness”.
Commerzbank said the writedowns would not impact its common equity Tier 1 ratio, which it expects to remain at nearly 12% by the end of the year. To bolster capital and cover the anticipated restructuring costs of 1.1bn, the bank said it will suspend dividend payments too.
The group said the negative interest rate environment remains challenging for its core business and if this persists, the bank will only target a net return on tangible equity of 6% by the end of 2020. That could increase by two percentage points if the rate situation improves.
Commerzbank said it will reduce its cost base to 6.5bn by 2020, which would represent two-thirds of anticipated revenues of between 9.8bn and 10.3bn by then. Revenues could rise to 11bn if rates return to a more “normal” situation, the bank said. A CET1 ratio of over 13% is targeted.
The group said it hopes to create 2,300 new roles meaning net job reductions will be 7,300.
The bank declined to give more details of the investment banking job losses. Trading accounted for half of the 383m second-quarter revenues made by corporate and markets.
Strong FX revenues around the UK referendum were not enough to offset an overall 25.4% decline in revenues over the second quarter. Equities trading in particular suffered.
Previous restructuring initiatives across corporate and markets has already seen the bank largely withdraw from its New York and London securities financing activities.
The plans are currently under consideration by the group’s supervisory board and the final agreed strategy will be presented by chief executive Martin Zielke to investors in London next Tuesday, October 4. (Reporting by Christopher Spink)