Commerzbank is proposing a major restructuring that will include 10,000 job cuts as new chief executive Manfred Knof prioritises cost reductions over efforts to boost revenue.
The lender on Thursday outlined the cornerstones of its new strategy, including a reduction in the number of German branches to 450 from 790, lowering the cost base by €1.4 billion ($1.7bn) and aiming for a return on tangible equity of 6.5 per cent to 7 per cent by 2024. The draft strategy will be discussed by the supervisory board on February 3.
Mr Knof and Commerzbank's supervisory board chairman Hans-Joerg Vetter are also weighing a target for cutting risk-weighted assets, a key metric that determines how much capital lenders have to hold, sources said. Revenue, one of the bank’s main targets in recent years, is expected to remain largely stable, according to the bank’s statement.
“Going forward, the bank will consistently put profitability before growth, for example when it comes to the efficient use of capital or adequate pricing of products and services,” Commerzbank said.
The new approach is taking a page out of Christian Sewing’s playbook at Deutsche Bank, who is cutting 18,000 jobs and billions of euros in costs while placing a large chunk of its assets in a wind-down unit. It marks a stark departure from the turnaround efforts under Mr Knof’s predecessor Martin Zielke, who invested heavily in marketing to win new clients, only to see income from lending to those clients eroded by Europe’s negative interest rates.
Deutsche Bank’s share price has since outperformed Commerzbank’s, which kept falling during the period before Mr Zielke resigned last year. Commerzbank’s stock hit a record low in early 2020 as the pandemic hit, threatening to drive up bad loans.
Shares of the lender reversed earlier losses after Bloomberg reported details of the new plan, and closed 6.4 per cent higher in Frankfurt trading on Thursday.
Cutting the balance sheet could offer an alternative way to restore profitability, for example by dropping unprofitable clients and product offerings to free up capital that can then be reinvested at better returns.
Commerzbank is anticipating restructuring expenses of €1.8bn, which will be fully financed with existing funds. It already set aside €800 million for that purpose last year.
Commerzbank has been working on a new strategy for over a year but the plan to present it in August fell apart when Mr Zielke stepped down amid heavy criticism from investors, along with then-chairman Stefan Schmittmann. The supervisory board subsequently appointed Mr Vetter as new chairman, who in turn hired Mr Knof to lead the next turnaround effort. Mr Knof joined in January.
