Commerzbank has announced its plans to undergo a restructuring of its activities and operations. The restructuring is part of the strategy to cover its losses, and concentrate its activities in two segments: private customers and corporate clients. Commerzbank is the second biggest lender in Germany, after Deutsche bank. The restructuring plan is announced in times when the biggest lender in Germany is faced with a possibility to be fined $14 billion by the Department of Justice.
The restructuring comes in time when Commerzbank has been looking for ways to compensate for the low level of loan demand as well as the negative European Central Bank interest rates, in a period when digital banking is emphasized.
Commerzbank is planning to decrease activities in investment banking. This, should result in a write down of 700 million euros, causing a net loss in the third quarter. In addition, dividend payout would be suspended, as a part of the strategy of Commerzbank to offset the losses.
It is expect that the restructuring cost would be in excess of 1 billion euros. The cost will be the result from the process of combining business operations.
Initial employee related implications would be the cut of nearly 10,000 full-time positions, representing around 20% of the current full time positions. But, the need of a 2,300 employees to serve the new business areas, means that the 7,300 job positions will be lost.
The bank is planning to put its focus on its core business. Thus expecting to have positive net return on tangible equity within the next couple of years.
The share price of Commerzbank has fallen from 9,36 euros in January 2016, down to 5.89 euros. During the same period, the share price of Deutsche bank has decreased by nearly 50% from the beginning of 2016, from 24 euros down to 12 euros. The significantly higher decrease of Deutsche Bank is partly because of the scandals this bank has been associated with.