Sat, Jul 12, 2014 - Page 15 News List

Germany’s Commerzbank to pay huge fine

UNDER SANCTION:The bank, alleged to have been dealing with Iran and other countries that are under US sanctions, is expected to pay out up to US$800 million

Reuters, NEW YORK

Germany’s second-biggest bank Commerzbank AG, is expected to pay US$600 million to US$800 million to resolve investigations into its dealings with Iran and other countries under US sanctions, sources familiar with the matter said.

The penalty, previously reported to be more than US$500 million, includes a demand from New York’s top banking regulator, Benjamin Lawsky, for more than US$300 million from the bank, the sources said.

Other authorities, including the US Department of Justice, the US Treasury Department, the US Federal Reserve and the Manhattan District Attorney, are also involved in the talks.

The German bank is the latest bank to enter into settlement negotiations with US authorities. French lender BNP Paribas SA struck a record-breaking US$8.9 billion deal last week to resolve investigations into violations of sanctions and related misconduct involving Sudan, IraWn and Cuba.

US authorities are also investigating Italy’s UniCredit SpA, France’s Credit Agricole SA and Societe Generale, and Germany’s Deutsche Bank AG for sanctions violations, sources said.

Analysts expect that Commerzbank will have to book charges of up to 300 million euros (US$409 million) as a fine of US$800 million would be about twice as much as the lender is estimated to have set aside for Iran.

Commerzbank had 934 million euros at the end of last year as provision for litigation risks, including the US investigation.

“An additional cost of 300 million euros would be a lot compared to Commerzbank’s expected 2014 earnings,” Metzler analyst Guido Hoymann said. “But breaking it down per share, the market may have overreacted.”

Commerzbank is expected to post a pre-tax profit of 1 billion euros this year, according to estimates compiled by Thomson Reuters Starmine.

Additional litigation costs of 300 million euros translate to charges of 0.26 euros per share, while Commerzbank’s shares have lost 0.77 euros since the start of the week.

Commerzbank shares closed down 2.04 percent on Thursday, underperforming the European banking sector, which was down 1.65 percent.

Among the violations being investigated are Commerzbank’s transactions for the Islamic Republic of Iran Shipping Lines, one of the sources said.

The state-sponsored shipping company was designated for economic sanctions by the US in 2008 for allegedly supporting Iran’s proliferation of weapons of mass destruction. The source said Commerzbank was alleged to have done business with the company despite knowing that it was sanctioned.

Commerzbank could not immediately be reached for comment. A settlement could be reached in the next few weeks, one source said.

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