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Commerzbank rebuts dividend-stripping allegations

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Commerzbank rebuts dividend-stripping allegations

Havingfailed to meet analysts' expectations for its first-quarter net income,Commerzbank AGrebutted allegations that it used dividend stripping to avoid paying taxes.

Dividendstripping at the bank cost the German taxman at least €1 billion annually overseveral years, Handelsblatt reportedMay 2. It occurs when a bank buys shares shortly before a dividend is paid andsells them afterward. The German newspaper said that while other lenders alsoused the "morally very questionable" practice, the allegationsagainst Commerzbank are particularly disturbing given that it was bailed out bythe German government.

Speakingto analysts during a conference call to discuss the bank's May 3, CFO StephanEngels batted away a question about the report saying: "We […] make surethat we operate only within the legally approved environment, both in the pastas well as looking forward."

Healso rejected the notion that Commerzbank's deferred prosecution agreement with a U.S. regulatormight be affected by any PanamaPapers-related investigations into the bank.

"LinkingPanama discussions regarding Commerzbank with a DPA breach is reallyfar-fetched — I cannot see that as of today," he said.

Commerzbankposted a first-quarter net profit attributable to shareholders of €163 million,slightly lower than the €166 million forecast by analysts and significantlydown on the first-quarter 2015 figure of €338 million. Revenues before loan-lossprovisions came in at €2.31 billion, down from €2.79 billion in the year-agoperiod.

Engelsattributed the decline in revenues to "challenging markets at thebeginning of the year" and "sluggish client demand." He addedthat negative interest rates cost Commerzbank around €90 million in the privatecustomers and Mittelstandsbank segments, as loan volumes in the latter remainedflat. The Mittelstandsbank serves small and medium-sizedbusinesses.

First-quarternet interest and trading income decreased to €1.34 billion from €1.99 billion ayear earlier, but Engels pointed out that the bank has introduced severalmeasures since the turn of the year to counter the effects of the low-interestenvironment.

"In[private customers], for example, we have introduced fees for paper-basedtransactions," he said, adding that Commerzbank also tries to appeal toMittelstandsbank customers, for instance by agreeing individual fees withclients that park excess liquidity with the bank.

Therewas good news for Commerzbank with regard to nonperforming loans, loan lossprovisions and its Polish subsidiary mBank SA, which now has more than 5 million customers.

Despitethe €13 million impact of the newly introduced Polish banking tax, theoperating result of Commerzbank's central and eastern Europe division fell onlyto €77 million in the first quarter from €79 million in the fourth quarter of2015 and €88 million in the year-ago period.

Thebank's NPL ratio improved to 1.5% from 1.6% at year-end 2015, while loan lossprovisions dropped to €148 million in the first quarter from €158 million ayear earlier, reflecting "a risk environment that continues to bebenign," Engels said.

Headded that excluding the Polish banking tax and the full-year European banklevy of €143 million, which was registered in the first quarter, the level ofcosts remained flat in the first quarter.

"Pleasekeep in mind that having a stable cost base implies that all strategicinvestments — for example in digitization as well as enhancing internalregulatory and compliance systems — could be fully offset by our ongoing costinitiatives," he told analysts.

Butdue to the slow start in 2016 and because of the ongoing negative interest rateenvironment, Commerzbank will find it "more challenging" to achievethe net profit posted in 2015, Engels added.