Commerzbank ditches targets on Greek losses

Germany's second-biggest bank Commerzbank abandoned on Friday its profit target for next year after writedowns on its Greek bond holdings pushed it deeply into the red in the third quarter.

Commerzbank ditches targets on Greek losses

“We continue to be committed to our original operating profit target of €4.0 billion ($5.5 billion) for the group, but on account of the market environment we will be unable to reach this target next year,” said chief executive Martin Blessing in a statement.

Commerzbank had already warned back in August that its 2012 profit targets were “conditional upon stable markets,” Blessing noted, saying the group was now simply projecting a “good operating result” for its core banking activities next year.

“In the non-core areas the result for 2012 will be dependent to a great degree on how the European sovereign debt crisis continues to develop,” he added.

Turning to its third-quarter results, Commerzbank said additional writedowns on its holdings of Greek sovereign bonds had pushed it to a net loss of €687 million in the period from July to September.

That was much deeper than expected: analysts polled by Dow Jones Newswires had been pencilling in a net loss of €585 million. Commerzbank booked bottom-line profit of €24 million in the preceding quarter and net profit of €113 million in the third quarter of 2010.

The group attributed the bigger-than-expected loss in the third quarter of the current year to an additional writedown of €798 million on its Greek bond holdings.

Commerzbank is one of the German banks most heavily exposed to Greek debt.

“With a view to the ongoing uncertainty regarding Greece’s financial solvency and with regard to the EU summit on October 26, the positions held by the bank were depreciated by 52 percent of their nominal value,” a spokesman from the bank explained.

At a crunch summit last month, EU leaders agreed that banks and private investors take a 50 percent loss or “haircut”, slicing €100 billion off the €350 billion debt mountain around Greece’s neck.

Commerzbank also said it was examining all options so as to meet the additional capital requirements of the European Banking Authority (EBA).

In an immediate move to accelerate the reduction of risk-weighted assets, the group would temporarily suspend all new business at its troubled mortgage lender, Eurohypo; temporarily suspend all new loan business outside its core regions of Germany and Poland; speed up the sale of non-strategic assets; and examine the possibility of selling financial investments.

But those would not include its online unit, Comdirect, or its Polish subsidiary BRE Bank, “which are part of the core business,” Commerzbank insisted.

Commerzbank was biggest loser on the Frankfurt stock exchange on Friday, with its shares shedding 4.6 percent to €1.67.


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German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020