Sat, Nov 05, 2011 - Page 10 News List

Greek public debt writedown pushes Germany’s Commerzbank into a loss


The Greek debt crisis pushed Commerzbank into a loss of 687 million euros (US$950 million) in the third quarter as Germany’s No. 2 bank took a large reduction in earnings because of Greek government debt.

The bank yesterday said that it wrote off 798 million euros of its holdings of Greek government bonds in the quarter, saying it had now cut the value of Greek debt on its books by 52 percent.

The loss showed how the eurozone’s government debt crisis can shake bank finances — one of the chief reasons the crisis worries political leaders. Commerzbank said it would strengthen its finances by continuing to unload risky investments and halting loans outside Germany and Poland.

Greek bonds have fallen sharply in value as the country works out a debt relief deal in which creditors would see the value of their bonds reduced by 50 percent and the country would get 100 billion euros in further crisis financing. However, the bailout and its accompanying conditions have not yet been approved by parliament, and the writedown has not been finally concluded with banks.

Commerzbank’s loss compared with a profit of 113 million euros in the same period a year earlier. The bank also abandoned its goal of 4 billion euros in operating earnings for next year.

Commerzbank, which is 25 percent owned by the German government, said that its core banking activities — including lending to business customers in Germany — were doing relatively well. The German business lending division made 344 million euros, and writeoffs for bad loans remained low as the Germany economy continued to grow.

Along with the Greek writedown, its efforts to unload risky government debt led to a 1.5 billion euro reduction in earnings in total, and the bank said the effort would continue. The bank said it had reduced its exposure to Greece, Ireland, Italy, Portugal and Spain — countries whose bonds have been under market pressure — by 20 percent to 13 billion euros.

Commerzbank chief financial officer Eric Strutz said the bank’s board of directors had decided on measures to boost its capital ratio, the size of its financial cushion measured against the loans and other investments the bank holds. He said the bank would do that by reducing riskier forms of business and not by asking for more capital from the government.

Those steps include halting loans not connected to its business in Germany and Poland and selling assets, as well as holding back earnings to build reserves, and through tougher cost management.

European authorities are pushing for banks to establish a 9 percent ratio of highest quality reserves against their holdings after revaluing Greek debt by the middle of next year, a measure aimed at cushioning banks against any further losses on bonds issued by overindebted eurozone governments.

“Since 2009 we have already been consistently reducing risks in our business. We are now further accelerating this process,” Strutz said. “This will not happen at the expense of the German economy. We will continue to stand by our customers ... and we do not intend to make use of public funds.”

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