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February 05, 2001

A new structure for the 21st century
One billion euros in extra earnings by 2003

At its meeting on February 5, Commerzbank's supervisory board gave broad approval to plans by the board of managing directors for a repositioning of the bank in terms of its organization under the project name "CB 21". As Commerzbank's chairman, Martin Kohlhaussen, explained, CB 21 will enable the bank to strengthen its position as a major European financial group: "By means of a strictly customer-oriented approach, combined with a concentration on core competencies and exploitation of economies of scale, we will serve the interests of our customers and raise shareholder value. And we will achieve this without having to reduce staff on a serious scale".

The most important steps in this respect are:

1.Concentration on core competencies and the European market
2.Exploring customer potential through close contact with customers and integration
3.Achieving critical mass in all market segments
4.Substantial investment in new technology in order to remain one of Europe's leading internet banks.

These strategic priorities entail a variety of measures, whose implementation promises a steady and marked expansion in operating profits: from an extra pre-tax profit of 140m euros this year to just over 1bn euros in 2003 and practically an additional 1.6bn euros by 2005.

The bank's board of managing directors sound a confident note for the coming months. Due not least to the favourable economic setting and the positive impact of Germany's tax reform, they expect to be able to maintain good operative earnings, while at the same time containing the increase in costs.

In concrete terms, the pruning of 152 units of the domestic branch network - though a nationwide presence will be maintained - will add 165m euros to the income statement by 2005. Altogether, the intensification of the extensive bancassurance cooperation with the Italian Generali Group and its German units, as well as other improvements to distribution in the retail customer area, will yield 360m euros. Commerzbank expects the release and better use of capital, above all in corporate-customer business, and the stepping-up of corporate finance activities to yield almost 150m euros, while the close integration with investment banking should produce a good 300m euros as well. A similar planned increase will be generated by various structural improvements and the growth in asset management. The streamlining of the foreign branch network, the bundling of treasury activities and the pooling of support functions should boost the pre-tax profit by about 238m euros.

Stronger contacts with customers thanks to two operative divisions

As announced earlier, the bank has created an even more strongly customer-oriented organization, under which its operative business has been concentrated since January 1 into two large divisions to replace the previous three.

1.In the retail banking and asset management area, all the national and international activities involving private customers, as well as the investment and management of assets for private and institutional clients, are grouped together. A board member is fully responsible for each of the two departments.
2.In the corporate and investment banking area, all business relationships with companies and institutions, and also the trading sections of investment banking, are being linked up with one another. Each of the seven departments will similarly be managed by one board member with clearly defined responsibility for it. In investment banking, the fixed income area in particular is being expanded, while the M&A/advisory services unit is being built up afresh.

The current structure of the two other non-operative divisions, group management and services, will remain unchanged. Reduced to a simple formula, this means according to Mr. Kohlhaussen that, "In future, Commerzbank, under a virtual holding comprising the departments of group management, will consist of a bank for retail customers and a bank for corporate customers, backed up by a shared services section."

Foreign presence under review

In addition to examining the domestic branch system, the management board has also critically reviewed the network of operative units and representative offices abroad with a view to their long-term earnings performance and future outlook. Commerzbank has placed its emphasis on Europe and by concentrating treasury activities, centralizing back-office functions and standardizing its approach to selling products, it intends to use synergies in order to step up its business with corporate customers.

Outside Europe, the bank will dispose of those outlets and shareholdings which are not necessary for a bank with a European orientation. In recent months, it has already closed representative offices in Toronto, Sydney and St. Petersburg. All of its non-European commercial-banking activities are being systematically managed from regional centres in New York and Singapore.

"These measures show that Commerzbank is rapidly transforming itself into an integrated provider of financial services with a strong customer orientation. In future, it will concentrate even more on its strengths, such as its high level of customer satisfaction, large customer base, high-quality products and progressive e-banking in the European context, thus differentiating itself from its competitors," said Mr. Kohlhaussen.