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March 31, 2003

Commerzbank 2002 year-end results

  • Costs down to 4.5bn euros by 2004
  • One billion euros extra credit for Mittelstand
  • Retail Banking again in the black
  • Dividend of 0.10 euro for 2002
  • Two new Management Board members

The Chairman of Commerzbank's Board of Managing Directors, Klaus-Peter Müller, presented the results of the "Cost-Offensive-Plus" at today's Supervisory Board meeting. Through this new savings program, with 650 separate items, the costs of the Bank will decrease to less than 5bn euros this year (2002: 5.15bn euros). Next year costs should reach only 4.5bn euros, the same level as in 1999. Compared to the high point reached in 2001, this is the equivalent of lowering costs by almost one-fourth. The Board reacted to the continuing difficulties of banking in Germany with far-reaching cost cuts totalling 688m euros. The savings are split between 381m euros for personnel and 307m euros for other costs. Of that total, around 460m euros in savings will effectively be achieved in 2003.

Cost-Offensive-Plus plan to eliminate 3,100 jobs

  • Domestically, especially in the Group Controlling and Group Services departments, another 1,500 reductions are planned. All central staff units are affected, including the Information Technology, other back-office areas and headquarters departments. All cutbacks still have to be reviewed by the Works Council. The Bank plans to open talks immediately with these representatives.
  • Overseas branches and subsidiaries will cut another 1,100 jobs.
  • 500 additional job cuts are now being negotiated or are already completed, especially in Investment Banking.
  • Cutbacks in other expenses will be mainly due to reducing expenditures for Information Technology (by 118m euros), as well as through lower rental, advertising and consulting costs.

Mr. Müller commented on the staff cuts by saying: "It personally hits us very hard that we have to enforce another staff reduction, as behind these numbers are individual hardships. But in light of banking's rapid structural changes and the continuing drop in demand for financial services, we had no other choice, since this is necessary to secure the remaining positions. However, this time it will hardly be possible - through natural fluctuation, part-time jobs and pre-retirement plans - to continue cutting costs without staff cuts due to the drop in business."

Up to now, cost cuts have resulted in 4,300 job losses. After the cutbacks through 2004, the Commerzbank Group will employ around 32,000 personnel; at year-end 2001 it was almost 39,500. "With our Cost-Offensive-Plus we must make ourselves more fit and trim so that we can achieve our goal of getting back into the black this year," said Mr. Müller in underlining his prediction for 2003. As reported to the Supervisory Board, business in the first two months was generally positive. Particularly the results from Group Treasury and Investment Banking were clearly better.

New loan initiatives for the Mittelstand and construction

In outlining the Bank's future strategy for the Supervisory Board, Mr. Müller said that, after a strong push to reduce its risk positions last year and the consequently much improved core capital ratio of more than 7.3 percent, Commerzbank now has more flexibility in its lending business. This they plan to use now, which is why the Management Board decided to send a signal with a new lending offensive, providing an additional one billion euros in credits to help support the successful German Mittelstand.

This expansion in Mittelstand credits will also be supported by a lower interest rate loan of 500m euros from the government-owned Kreditanstalt für Wiederaufbau (KfW), and a similar loan of 250m euros from Baden-Württemberg's L-Bank. Altogether this will mean an additional 1.8bn euros available for loans to the Mittelstand. "This demonstrates that Commerzbank is committed to serving the Mittelstand in Germany," said Mr. Müller of the lending plans.

A further initiative was started by Commerzbank at the beginning of March to help support private residential construction. Another loan from KfW valued at 1.5bn euros, fully utilizing the advantages of lower cost refinancing, will be passed on to the Bank's customers in the form of individual construction loans. "We think this will help us gain additional market share in construction financing, as we can fulfil the wish of everyone to have their own home on especially good terms," said Mr. Müller.

Dividend as sign of confidence

At its meeting the Supervisory Board approved the Annual Report for 2002. The 361,000 shareholders of Commerzbank will be recommended a dividend of 0.10 euros per share at the Annual General Meeting scheduled for May 30. The necessary payout of 54.2m euros will come from the net earnings of the Parent Bank. Holders of profit-sharing certificates will be paid in full. The dividend recommendation reflects the Bank's confidence that 2003 will see a turn for the better.

Details of segment reporting

The final results for 2002 are generally in accordance with the preliminary figures presented at the February 5th press conference. They show the Commerzbank Group reported a net loss of 298m euros last year. The operating result was 192m euros in the black. Total assets at year's end were 422bn euros. Based on these figures, the Bank had a 1.6 percent return-on-equity with a slightly improved cost/income ratio of 77.3 percent.

The segment reporting (see Annual Report pages 120-127) for the first time no longer lists the "Profit contribution from business passed on" for each segment, rather such earnings are split directly. Especially noteworthy is the Retail Banking segment, which, after reporting a loss the previous year, was back in the black with an operating profit of 53m euros. Asset Management reported a slightly positive operating result, however restructuring expenses and the write-off of goodwill resulted in a pre-tax loss of 330m euros. Higher loan-loss provisions negatively affected the results of Corporate Customers and institutions. Yet it still reported the highest profit of all the business lines; its return-on-equity and cost/income ratios were 8.5 percent and 45.9 percent, respectively. The Securities department, including foreign exchange trading, suffered from the downward trend on the stock markets, shown by its operating result being minus 296m euros.

Mr. Teller and Dr. Strutz appointed to Board

The Supervisory Board also appointed two new members to the Board of Managing Directors:

  • Nicholas R. Teller (43), previously Regional Board Member responsible for corporate customers in Northern Germany and Scandinavia, joins the board as of April 1. A British citizen, he takes over responsibility for Corporate Customers from Andreas de Maizière, who in the future will be responsible for IT, Operations, Transaction Banking, Branch organization and Personnel
  • Dr. Eric Strutz (38), head of the Corporate Strategy and Corporate Controlling department, will take over as Chief Financial Officer, subject to the approval of the Federal Supervisory Office for Financial Services (BAFin). He succeeds Dr. Axel Frhr. v. Ruedorffer (61), who is retiring following this year's AGM. Klaus Patig will assume responsibility for implementing the Cost Offensive.

With these appointments the average age of Commerzbank board members decreases appreciably, even while it gains two experienced specialists. "The appointments of Mr. Teller and Dr. Strutz is a clear signal that we are planning long-term, and remain focussed on our goal of returning to solid earnings," said Mr. Müller of the new board members.