Commerzbank Proposes Strategic Overhaul To Boost Profits
Zacks Investment Research | Sep 23, 2019 12:40AM ET
Germany-based Commerzbank AG (DE:CBKG) (OTC:CRZBY) is planning a strategic business overhaul with an aim to boost profits amid a challenging operating backdrop. The bank intends to close branches, slash workforce and restructure operations.
The company’s board of managing directors has submitted the plan to the Supervisory Board and discussions will be held with the same later this week, before being presented at the press and investors conference on Sep 27.
Plan Details
Commerzbank plans to digitalize its operations, strengthen mobile banking capabilities and invest in technology upgrades. For this, the bank expects to incur approximately €750 million ($844 million) of charges.
Further, the proposal includes the merger of comdirect bank AG into Commerzbank. At present, Commerzbank holds 82% stake in comdirect bank. The company plans to offer 25% premium for the remaining comdirect bank stake. Also, Commerzbank, while maintaining the nationwide presence, will be closing around 200 branches (nearly 20% of its current network).
All these efforts will result in roughly 4,300 job cuts across the company. However, the company will likely be hiring around 2,000 employees in strategic areas. Therefore, the net headcount reduction is expected to be 2,300. For all these streamlining efforts, Commerzbank will incur restricting expenses of €850 million ($956 million).
In addition to these, Commerzbank proposes to divest its 69.3% stake in mbank S.A., its Poland-based subsidiary. This divestiture will likely lower the bank’s workforce by another 6,600. The planned sale will be subject to regulatory approvals.
The company stated that the sale will lead to “a faster implementation of its strategy and the associated investments.” The divestiture will also result in reduction in Commerzbank’s risk-weighted assets by nearly €17 billion ($18.7 billion).
Medium Term Targets Set
The implementation of these strategic efforts will support Commerzbank in achieving higher revenues by 2023, even if market conditions deteriorate further. Further, the bank expects a cost base of €5.5 billion in 2023 subsequent to the sale of mBank.
Following the implementation of the strategy, Commerzbank targets to achieve return on tangible equity ratio of 4% in the medium term. This will enable the company to pay out regular dividends. The company’s capital ratio is expected to remain in the 12-13% range over the same time frame.
Our Take
Commerzbank’sinitiatives are expected to support profitability and help counter slowdown being faced by the eurozone. The failed merger talks with Germany’s largest bank, Deutsche Bank (NYSE:DB) in July are also one of the reasons for this overhaul.
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Shares of Commerzbank have lost 6.4% on NYSE so far this year against the Zacks Investment Research
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