Commerzbank AG abandoned its goal for a full-year profit after losses tied to the failure of Wirecard AG added to surging costs for bad loans, underscoring the challenges as the lender seeks to emerge from a leadership crisis.
The outlook revision was driven by a single case that cost the bank 175 million euros last quarter, it said in its quarterly report. That exposure was Wirecard, according to a person familiar with the matter who asked not to be identified.
Net income for quarter, at 220 million euros, came in higher than expected, after the bank’s online broker Comdirect posted record revenue when trading volumes surged during the pandemic.
The results cap a
dramatic quarter in which Commerzbank was plunged into disarray when CEO Martin Zielke and Chairman Stefan Schmittmann last month announced their resignations amid mounting calls from shareholders for deeper cost cuts.
Hans-Joerg Vetter, who succeeded Schmittmann on Monday, will now have to find a CEO who can navigate the conflicting demands of stakeholders and put the lender on a more sustainable footing during the country’s worst crisis since World War II.
The bank stashed away 469 million euros ($554 million) in the second quarter to deal with an expected mountain of bad debt. That’s the highest since 2013. For the full year, it now expects to set aside between 1.3 billion euros and 1.5 billion euros, up from no more than 1.4 billion euros.
The firm is among the lenders hit worst by the collapse of Wirecard, which filed for insolvency after saying that 1.9 billion euros previously reported as cash on its balance sheet didn’t exist. The payments company had a credit facility of 200 million euros with Commerzbank, of which about 90% was drawn at the time of its undoing, Bloomberg has reported. ING Groep NV, ABN Amro Bank NV and Landesbank Baden-Wuerttemberg, or LBBW, had a similar exposures.
That hit is now likely to push Commerzbank into the red for the full year. But even before it cut the profit outlook, analysts were expecting the bank to post a full-year loss of about 300 million euros.
The outlook revisions makes it “all the more important that we reduce our costs in order to be able to cushion future burdens,” Chief Financial Officer Bettina Orlopp said in a press release. “We are working on this and have stepped up the cost target for this year.”