1. Commerz Bank
Das Slog
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2. “TheSecond-BiggestBankinEurope’sstrongesteconomyStillfacesadifficulttask”
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3. Commerzbank'sMarketing Materials
It shows a painful reshaping of Europe’s troubled banking system to be:
Smaller
Safer
More domestic
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4. Commerzbank’sInitial Trajectory
Commerzbank’s initial path through the crisis look like that of another
European lender, Britain’s Lloyds Banking Group (LBG)
Like LBG, it was a big bank but not the biggest in the country
Deutsche Bank is Germany’s Giant. Like Lloyds, it undertook a disastrous
domestic transaction at the worst possible time, buying Dresdner Bank in
the summer of 2008 just weeks before LBG eat up HBOS. And like the British
bank, it quickly ended up selecting state assets to survive
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5. Parallels Between LBG & Commerzbank
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6. LBG’s shares have risen by 33% in the past three months, and by 133% in
the past year
The bank’s share price floats just below the price the British government
paid to buy its 39% stake, which will soon be sold
Commerzbank
Things look far less fizzy at Commerzbank
At the time of the rescue deal the bank’s boss, Martin Blessing, declared
that state ownership should last a maximum of 36 months. More than four
years on, its shares still holdup the broader index of European banks
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7. Continued
Its price-to-book ratio is one of the lowest on the continent (see chart). Its
2012 net profit came in at a mere €6m ($7.7m)
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8. Rumors about GermanGovernment
Rumors that the German government might sell its 17% stake to a foreign bank were
scotched this week. Newspapers speculate whether the bank might exit the DAX,
the country’s benchmark stock market index, leaving Deutsche as the only member
bank
The euro-zone crisis weighs heavily
The restructuring of Greek government debt handed it a big loss. Historically low
interest rates have depressed income. Competition from Germany’s many small
savings banks and co-operatives puts pressure on fees; online banks are adding to
the pressure. A downturn in shipbuilding has hit Commerzbank’s big portfolio of
loans in that industry
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9. For one bank to have had so much bad luck prompts the question of just
how much carelessness, not misfortune, is to blame
Like many European banks, both Commerzbank and Dresdner invested in
mortgage-backed assets before the crisis. And like many of its continental
peers, the bank was also a big international lender against durable assets in
areas like shipping, aviation and property
About a quarter of its €18.3 billion shipping portfolio is non-performing
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10. What Analysts Want?
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11. Analysts want Commerzbank to keep shedding these “non-core” (non central)
assets, which stood at €151 billion at the end of 2012
Some are easier to offload than others. Holdings of external euro-zone government
bonds can be gently unwound by letting them run off. But shipping and property
loans are longer-term and less liquid
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12. The combination with Dresdner gave Commerzbank a desirably big retail-
branch network and customer base in Europe’s strongest economy
The Mittelstandsbank, the division lending to Germany’s small and medium-
sized, mostly family-owned businesses, is in decent health: 30% of
Mittelstand companies are customers, and the pre-tax return on equity in
this unit was 28.6% in 2012, against 3.1% for the group overall
As these firms go into global markets, where savings banks cannot follow,
Commerzbank has a shot at boosting its business with them. Expansion in
Poland looks sensible
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13. Visionto Reality
Yet the bank is still some way from turning this vision into reality. A banking
consultant quips that the maths of the Dresdner deal amount to “one plus
one equals to one”. And a domestic focus has its downsides
Aggressive local competition from the savings banks and co-operatives will
not go away
 Interest rates will remain low as long as inflation stays quiet
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14.  Mr.Blessing and his team have little choice that
includes making more cuts in branches and staff
(branches have already fallen from about 1,500
to 1,200), controlling their tempo so that the
bank can gain savings without beating its
franchise
 Not every location needs an expert in
everything; more advice can be given online or
over the phone
 Another is growth in its online division.
Commerzbank has a balance to build a stylish
offering; savings banks and co-operatives may
not. Such strengths should eventually return
Commerzbank to fitness. But the miserable
share price suggests that investors expect a
period of difficulty before it is back to running
speedily
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Decision

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