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Commerzbank weighs deeper cuts as economy, rates hit stock

Bloomberg/James Macdonald

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The weak economy and prospect of even lower rates—which erode income from lending—have pushed the bank’s CEO to consider options more severe than anticipated.

Thursday 22, August 2019

Commerzbank’s strategy update this fall is likely to focus on deeper job cuts and branch closings as the troubled German lender contends with fears of a recession and a slump in the shares, reported Bloomberg.

Chief Executive Officer Martin Zielke, whose three-year-old strategy was based on the prospect of a growing economy and rising interest rates, is examining various cost-cutting scenarios, some of which include closing hundreds of branches. Germany’s economic contraction and global trade tensions have thrown a wrench in Zielke’s plan to pivot Commerzbank away from investment banking and toward consumer and corporate lending in its home market.

Government-brokered talks about a takeover by Deutsche Bank collapsed in April. Commerzbank shares have erased all gains since Zielke first announced his strategy in 2016 and are trading near a record low.

Planning for the strategy update, which will set new targets beyond 2020, hasn’t been finalised and the supervisory board will not discuss the plan until late September, the people said. But Zielke will probably have to give up his commitment to the bank’s vast branch network in Germany, they said. Handelsblatt earlier reported on the discussion to close branches.

The bank has about 1,000 branches in Germany. Headcount has fallen from about 43,300 at the end of 2015 to 40,700 in June this year. Commerzbank earlier this year scrapped a previous target to lower that number to 36,000 by 2020, saying it will stay above 38,000.

Additional reductions would probably only happen over time because of the strong position of labour unions in Germany, where they have a say in how companies are run. Many of the cuts the bank has already agreed with unions will only take effect this year and next, Commerzbank has said.

The plan to cut branches is a departure from previous and oft-repeated pledges by retail head Michael Mandel not to let the number drop below 1,000. He committed to maintaining the branch network as the centrepiece of a marketing campaign that lampooned other lenders -- including Deutsche Bank -- for shrinking their number of outlets.

The bank is considering charging clients new or higher fees for banking services, there is also the option of passing on the European Central Bank’s negative rates to retail clients, but that is something the German lender has said it doesn’t currently plan to do.

 

TAGS : Commerzbank, job cuts, Martin Zielke, US-China Trade tension, economic contraction

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