Germany’s Commerzbank is to slash over a fifth of its workforce and suspend its dividend as it becomes the latest bank to face the challenges of low interest rates, weak profits and the move to online banking, according to a Reuters report today.
The bank is planning to cut 9,600 of its 45,000 full-time positions in a move more drastic than the 10 percent staff reduction at Deutsche Bank which continues to be under pressure for deeper cost cuts as profit margins remain thin in Europe’s competitive banking markets.
The overhaul includes merging its four main business segments into two and moving 80 percent of its processes online in an attempt to make its earnings less volatile.
Chief Executive Martin Zielke commented: “We simply don’t earn enough money to lead the bank sustainably and successfully into the future. And this situation will get worse if we don’t do something about it,” as reported by Reuters.
The changes are expected to prompt a writedown of around €700 million ($784 million) in the third quarter, leading to a quarterly net loss although the bank expects to turn a small net profit in full-year 2016.
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Commerzbank’s shares have decreased by almost 40 percent since the beginning of the year, compared with a 24 percent drop in the banking index.
Commerzbank has said it is looking to add 2,300 positions in areas where business was growing, easing the net reduction to 7,300.
While the staff cuts are large, Commerzbank’s target of reducing its annual cost base to €6.5 billion ($7.3 billion) by 2020, from €7.2 billion ($8.1 billion) last year, fell short of expectations.
Commerzbank said it would cease dividend payments for the time being to cover restructuring costs estimated at €1.1 billion ($1.2 billion). One of the bank’s top 10 shareholders reportedly commented that “the drastic cost-cutting would be hard for employees but was unavoidable to make the bank more efficient”.
The bank plans to merge its business dealing with medium-sized German companies with its corporate and markets segment. It also plans to cut back trading activities in investment banking to help reduce earnings volatility and free up capital for use elsewhere.
The restructuring is expected to lift net return on tangible equity to at least 6 percent by the end of 2020 from 4.2 percent last year.