Daily Management Review

Commerzbank will dismiss 5000 employees


Commerzbank is considering possibility of cutting at least 5 thousand jobs, or more than 10% of the total headcount.

In addition, the company may close one of the units, and hold a major reorganization aimed at addressing a problem of low profitability on the back of low interest rates and low client activity in the market, according to Marketwatch.com citing sources.

The second largest by market capitalization German creditor bank is currently adjusting plans, which will be announced at the end of next week. Then, Martin Silke, new Commerzbank CEO, will unveil a new strategy, the sources noted.

Silke plans to reduce office staff, said one of the sources.

Commerzbank’s division serving medium-sized businesses, which is one of the four key activities of the bank, will be eliminated under the new strategy, the sources said. Smaller customers, with annual revenues of up to € 5 million, will be transferred to the retail service unit. Larger clients will be transferred to the investment banking division, said the source.

Other European banks have also carried layoffs. The organizations are seeking to reduce costs in connection with the financial crisis. Since it started, many banks have been struggling to stay afloat against the backdrop of low interest rates, low client activity and tightening regulations.

In August this year, Commerzbank held preliminary talks on merger with another major German bank, Deutsche Bank AG, within revision of the strategy. Later, however, it was decided that it would be impractical, said the source. He also noted that Silke’s predecessor, Martin Blessing, also considered this possibility, but postponed it.

In August, Commerzbank warned about decline in profits in 2016 because of cautiousness of clients and pressure of European Central Bank’s negative interest rates on the lender’s income.

The German bank’s forecast appeared to be more pessimistic than previous. According to the lender, the economic environment "complicates" achievement of last year’s net profit target of 1.06 billion euros ($ 1.2 billion).

Commerzbank said that interest rates and continuing care of customers due to geopolitical uncertainty negatively affects profits, despite the growth.

"The bank expects that negative interest rates and unfavorable environment in the market will continue to put pressure on revenues," - said the creditor in the quarterly report.

Commerzbank unveiled preliminary data on profit in the second quarter at the end of July. They pointed to a drop in net profit by one third per annum.

Net income in the second quarter fell to 209 million euros from 307 million a year earlier, the bank said.

Operating profit of Mittelstandsbank, serving small and medium-sized firms, fell 40 percent to 412 million euros in the first half.

Head of Commerzbank Martin Silke, who took office in May, will present its medium-term strategy soon, and many analysts expect to that he will seek to reduce costs. Sources familiar with the situation told Reuters that Silke can reduce up to 20 percent of jobs in Mittelstandsbank.

source: marketwatch.com 

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