Commerzbank profit drops 21% as loan loss provisions rise

Commerzbank Wednesday reported a 21% drop in second-quarter net income to 220 million euros ($ 259.7 million) due to a sharp increase in loan loss provisions.

The German lender expects a net loss for the full year as it sets aside 469 million euros for bad debts due to both the coronavirus pandemic and the insolvency of payments giant Wirecard. However, stocks rose on Wednesday as the drop in profits was not as drastic as the market had expected.

Wednesday’s earnings report comes amid a leadership crisis at Germany’s second-largest bank. Chairman Stefan Schmittman and CEO Martin Zielke announced their sudden resignations early last month under pressure from shareholders to cut costs.

Commerzbank has since appointed Hans-Jörg Vetter, former head of public lender LBBW, as its new chairman, despite fierce opposition from its second shareholder, US private equity firm Cerberus Capital Management.

Commerzbank CFO Bettina Orlopp told CNBC on Wednesday that the bank would wait for the appointment of a new CEO before detailing further cost-cutting measures.

Orlopp also told CNBC’s Annette Weisbach that the bank forecasts a “U-shaped” economic recovery based on developing pandemic numbers and “positive numbers” in 2021.

“We also clearly assume that there will be cases regarding loan loss provisions for the third and fourth quarters,” Orlopp said.

“That is why we have already reserved a forward-looking high-level adjustment to take this into account.”

Commerzbank did not identify Wirecard in its earnings report, but noted that a “single case” was responsible for an additional 175 million euros in loan loss provisions added in the second quarter. Wirecard went bankrupt in June and its CEO Markus Braun arrested following an accounting scandal in which she admitted that € 1.9 billion on her balance sheet probably did not exist.

“We had already stated in the last quarter that given the income situation, the provisions for loan losses due to the corona crisis, it would be very ambitious to achieve positive net income (for 2020),” Orlopp said.

“Now we have this unique case in play and we have also made it clear that we want to reserve these restructuring charges in the third and fourth quarters to really make progress in our cost reduction, and therefore the outlook is negative for the bottom line. “

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