For Commerzbank boss Martin Zielke, there is no alternative to a drastic cuts after the failed merger attempt with Deutsche Bank. Many employees will be laid off, and business will be more expensive for customers.
Commerzbank, Germany’s second-largest bank, remains a construction site even after years of restructuring and realignment. After the merger negotiations with Deutsche Bank failed earlier this year, the management has now adopted a new savings plan. This programme, known as “Strategy 5.0”, plans to cut 4,300 jobs and close one fifth of all branches. This means 200 out of 1,000 branch offices.
In addition, the group’s only shining beacon of hope, the Polish subsidiary mBank, is to be sold in order to be able to cover the costs of the reorganisation. After years of a zero interest rate policy on the part of the ECB and the persistently fierce competition, Commerzbank’s financial reserves have been exhausted.
No hope for a better circumstances
The banks CEO Martin Zielke therefore saw no other way out than to tighten the belt even more and to prescribe a new tough regimen for the group. “The challenges for banks are great,” he said in the morning at the presentation of the new strategy.
According to him, the bank could not hope for a better environment. Commerzbank therefore wants to reduce its costs by 600 million euros by 2023. “The associated job cuts are unfortunately necessary,” said Zielke.
What this means for customers
The bank’s customers will also feel the effects of the austerity measures. Commerzbank wants to stick to its free current account, but many customers will still have to adjust to higher prices. The reason for this is the persistently low interest rate. Since the European Central Bank (ECB) charges penalty interest on money that the banks park with it, the industry incurs costs in the billions, which it is now increasingly passing on to its customers.
At the same time, the bank wants to get rid of one million inactive customers. The clients, some of whom were from before the Dresdner Bank takeover, cost Commerzbank money, Zielke said. Above all, the bank wants to win active customers. The bottom line is that a good one million new customers should be added by the end of 2023 – significantly less than originally planned.
Yield remains low
The fact that the bank will emerge stronger from the restructuring is not obvious. On the contrary, management expects only stagnating revenues for the current year. So far, a slight increase was expected. Already in the last two years, revenues stagnated at around 8.6 billion euros.
The bank is investing in its future, “and by making these investments, we are deliberately placing long-term success above short-term return targets,” said Zielke.
In general, Commerzbank expects only a gradual increase in its profitability by 2023. The outgoing CFO Stephan Engels explained that the corresponding ratio for the return on equity will probably be two to four percent over the next three years. He is convinced that a return of more than four percent is achievable in 2023. “In the best case a net yield of over five per cent would be possible.”
At the stock exchange, the rebuilding plans are causing mixed feelings. After the Commerzbank share initially fell to its knees, it recovered in the further course of the year. This does not change the fact that, after years of decline, the share price is again clearly outperformed by the overall index, the MDax, this year.