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Commerzbank to target 6% ROTE by 2020, scraps dividend 'for the time being'

CommerzbankAG will scrap 7,300 net jobs, cancel its dividend "for thetime being" and target a 6% return on tangible equity by 2020 under astrategy presented in draft form Sept. 29.

The restructuring process will cost the lender €1.1 billion,prompting the dividend cancellation and the full retention of any earnings.

Ahead of a meeting of its supervisory board to approve theplan, dubbed "Commerzbank 4.0," the bank's board of managingdirectors said the lender will reorganize its business into two customerssegments — private and small business customers, and corporate clients. Itsmittelstandsbank, which focuses on the German mid-sized businesses known as mittelstand, and its corporate andmarkets segments will be merged, and trading activities in investment bankingwill be scaled back.

The discontinuation of some business activities and thedrive for digitization and automation will lead to total job losses of 9,600full-time positions. The bank noted that it will add 2,300 posts, creating netlosses of 7,300 jobs.

Goodwill and intangible assets within the corporate andmarkets and mittelstandsbank will be subjected to an impairment test that isexpected to lead to a write-off of roughly €700 million in the third quarter,for which the bank now expects to report a loss. Commerzbank expectsthird-quarter revenue to be roughly flat compared to the second quarter, butsaid loan loss provisions will be "considerably higher" than in thefirst two quarters because of ongoing weakness in shipping markets.

Despite the projected third-quarter loss, the bank stillexpects a "small net profit" for full year 2016. Its common equityTier 1 ratio will be unaffected by the write-offs and is expected to beslightly higher at the end of the third quarter than at the end of the secondquarter, when it stood at 11.5% on a fully phased-in basis.

Commerzbank expects its CET1 ratio to be around 12% atyear-end 2016, above 12% in 2018 and above 13% in 2020.

Commerzbank said the 6% ROTE target for 2020 is based"on the expectation that the interest rate environment will remainchallenging," but that should the environment improve, an 8% ROTE isachievable. Other targets for 2020 include full-year revenue of between €9.8billion and €10.3 billion, or up to more than €11 billion in a better rateenvironment, and a reduction in the cost base to €6.5 billion, taking thecost-to-income ratio under 66%, or under 60% should rates improve.

The bank booked full-year 2015 revenue before loan lossprovisions of €9.76 billion and recorded operating costs of €7.16 billion,giving it a cost-to-income ratio for operating business of 73.3%. Net ROTE was4.2% in 2015.

The lender will begin discussions over the plan withemployee representative committees shortly. The board of managing directorswill decide on the strategic objectives Sept. 30, after discussions with thesupervisory board.