Commerzbank AG CEO Martin Zielke warned that the German lender will spend more than expected in 2020 due to planned hefty investments under its new strategy.
During a presentation of its new "Commerzbank 5.0" strategic plan, Zielke said the bank abandoned a previous target of trimming costs to €6.5 billion in 2020.
Operating expenses are now expected to total €6.7 billion in 2020, but will fall to less than €6.3 billion by 2023. Between 2019 and 2023 Commerzbank expects to realize €600 million in net cost savings, excluding the effects of its newly planned sale of Poland-based unit mBank SA.
The new strategy also involves branch closures, thousands of job cuts and the absorption of digital unit comdirect bank AG, and a €1.6 billion investment. Of that, €750 million has been earmarked for digitization, IT infrastructure and growth investments, while the remaining €850 million will be used for restructuring, most of it associated with headcount reduction.
CFO Stephan Engels said the €850 million restructuring charge would be recognized in such a fashion that the bank would be able to keep its promise regarding its dividend. The bank paid a dividend of 20 cents per share for 2018 and Zielke said that is "more or less [the] amount we are looking for."
mBank exit
Commerzbank plans to offload its stake in mBank, which stood at 69.31% as of June 30, which will release more funds for the new strategic plan and cut the bank's risk-weighted assets by about €17 billion. As part of the planned Polish exit, Commerzbank would probably keep the Swiss franc mortgage portfolio, which Engels described as "one of the best-performing in local comparison."
The chair of the Polish Financial Supervision Authority recently said Commerzbank would be required to hold the Swiss franc book if it exits mBank, in line with previous decisions on such transactions.
Polish lenders are at risk of repaying billions of zlotys to borrowers who took out Swiss franc-denominated home loans amid low rates before the 2008 financial crisis. Banks were left exposed when Switzerland unpegged its currency from the euro in early 2015, triggering an almost instant 40% appreciation.
Engels said that keeping the Swiss franc portfolio "would probably not really pose a real problem."
Digitization push
The move toward mobile banking and digitization is a key part of the Commerzbank 5.0 plan.
The bank is looking to increase market share of its private and small-business customers segment in Germany, mainly through mobile banking. With the envisaged integration of comdirect, the group plans to offer securities brokerage services through its online banking channels.
Commerzbank offered to pay €11.44 in cash per share for the 18% stake in comdirect that it does not currently own. This represents a 25% premium on comdirect's Sept. 19 closing price. The group also prefers that comdirect be integrated through a so-called squeeze-out process once the 90% acceptance threshold for the offer is reached.
Zielke said Commerzbank 5.0 would lead to lower costs of roughly €1 billion annually as it would modernize IT infrastructure. The bank also plans to focus on its Campus 2.0 effort to develop digitization processes in house.
Commerzbank will also let go of a total of 4,300 staff by 2023, but will also create 2,000 new positions. It will cut its branch network by 200 by 2023, leaving it with 800. But Zielke stressed that the branch network remains "a core part of the strategy and the cornerstone of our business model."
Low interest rates bite
As the continuing low-interest-rate environment hammers European banks' profits, Commerzbank plans to charge corporate clients for holding their cash. Zielke said the bank is in discussions with clients with high deposits. Furthermore, although the bank will not charge negative rates against German retail customers at the moment, Zielke did not rule out such a possibility.
Low rates are expected to continue longer than expected in Europe following the European Central Bank's recent decision to push the interest rate on the deposit facility to negative 0.50%. German banks stand to take the biggest hit from the rate cut since they hold roughly a third of total excess deposits on which the regulator imposes negative rates.
German authorities are examining a proposed penalty interest on retail deposits much to the dismay of lenders in the country, with the Federal Association of German Banks claiming that legal interference of this kind in the banking system would lead to "dangerous instability" in the financial markets.
