Commerzbank has just served up an unpleasant surprise to its shareholders. Germany’s second-largest lender said it would book a €560-million ($756-million) depreciation on deferred tax accruals, boosting its losses for the fourth quarter to €720-million, way above analysts’ estimates. What might look like a dull accounting operation at first sight in fact underlines the main challenge that Commerzbank, like many other banks, is facing in the post-crisis world: profit will never be the same again.
The €560-million writedown represents past losses that Commerzbank will not be able to book against future profit. The bank has declined to identify the business units responsible for the losses. A fair share of those appear to have been booked by Eurohypo, the money-losing mortgage unit that Commerzbank is dismantling. The bank has hinted that the other units might never recover fully.
The writedown helps illustrate the “new normality” that Commerzbank’s CEO Martin Blessing is talking about when describing the bank’s prospects. Tougher regulation, an environment of low interest rates, and increasingly risk-averse customers will make it much harder for banks to return to their glorious profitable past.
Coping with these trends requires a deep adjustment of business models and internal procedures. At least Commerzbank hasn’t dithered. In November, it announced a cost-cutting and reorganization plan aimed at strengthening its domestic retail operations. On top of the 9,000 jobs that vanished after the merger with Dresdner Bank in 2009, the lender plans to cull another 6,000 jobs by 2016. About 15 per cent of its domestic staff will go.
In the short term, the restructuring will be painful and expensive. It will add up to €500-million in the current quarter alone. These expenditures, however, serve a purpose. They will help to prepare the bank for the coming era of low profit and diminished expectations.