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ECONOMY

Commerzbank profits halved in 2011

Commerzbank, Germany's second-biggest bank, said on Thursday that the eurozone debt crisis and losses on its investments in Greece slashed profits in half in 2011.

Commerzbank profits halved in 2011
Photo: DPA

The bank also announced new plans to beef up its core capital by more than €1.0 billion ($1.3 billion).

Commerzbank said bottom-line net profit fell by 55.4 percent to €638 million

in 2011 and operating profit fell even more sharply, plunging 63.4

percent to €507 million euros.

The numbers were worse than expected and Commerzbank shares nosedived by nearly 10 percent at the start of trading on the Frankfurt stock exchange, plunging 9.6 percent to a low of €1.87.

“2011 was characterised for Commerzbank by a successful first six months and difficult market conditions in the second half of the year,” said chief executive Martin Blessing.

Nevertheless, the bank insisted it was satisfied that “despite the massive charges resulting from the European sovereign debt crisis, we attained a net profit overall.”

Indeed, in the core banking division, operating profit “more than doubled” to €4.5 billion, thanks to the stable economic situation in its main markets of Germany and Poland.

By contrast, the bank’s asset based finance division booked an operating loss of €3.9 billion after it was forced to write down the value of its holdings of Greek sovereign bonds to 26 percent.

Looking ahead, chief executive Blessing said Commerzbank “is on track and is strategically well positioned. In 2012, we intend to continually improve our operating profitability and further reduce risks.”

The high degree of uncertainty associated with the European sovereign debt crisis “will, however, continue to pose challenges for us,” Blessing warned.

But with Commerzbank’s focus on the core markets Germany and Poland, “we are well prepared to meet these challenges. For this reason, we assume that the core banking division will again post a solid operating profit in 2012,” the chief executive said.

Commerzbank said it was making “very good progress with the implementation of the package of measures presented in January of this year to strengthen its Core Tier 1 ratio.”

Already at the end of last year, Commerzbank had been able to reduce the additional capital requirement determined by the European Banking Authority (EBA) from €5.3 billion to around €1.8 billion.

And on the basis of the measures already taken, Commerzbank said it was confident that it would be able fulfil the EBA requirements by the cut-off date June 30, 2012 “in reliance on its own strengths.”

But as an additional measure to meet those requirements more quickly, Commerzbank said it would raise it capital by 10 percent and boost the important Core Tier I capital by more than €1.0 billion by swapping so-called hybrid capital instruments, subordinated debt securities and other capital instruments into shares.

“With execution of the transaction the already significantly reduced EBA capital requirements of €1.8 billion as of the end of 2011 could be further reduced to less than €0.8 billion,” Commerzbank said.

AFP/jcw

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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